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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


cS. 


^O 


SELECTED  CASES 


ON 


THE  LAW  OF 

NEGOTIABLE 
INSTRUMENTS 


BV 

ROBERT  E.  BUNKER 

PROFESSOR    OF    THE    LAW    OF    BILLS    AND    NOTES 
IN    THE    UNIVERSITY    OF    MICHIGAN 


CHICAGO  : 

CALLAGHAN  &  COMPANY 

1906 


Copyright  1906 

BY 

CALLAGHAN  &  COMPANY 

T 


PREFACE 


The  cases  appearing  in  this  volume  have  been  selected 
primarily  for  the  use  of  students  pursuing-  the  study  of  Negotiable 
Instruments  and  particularly  for  students  of  the  Law  Department 
of  the  University  of  Michigan.  They  are  arranged  in  an  order 
to  conform  to  the  plan  of  instruction  now  pursued  in  that 
Department.  The  plan  to  which  reference  is  made  is  sufficiently 
indicated  by  the  Table  of  Contents  infra.  In  brief,  it  involves  a 
study  of  the  law  of  Negotiable  Instruments  on  the  basis  of  the 
contract  of  the  several  parties  as  that  law  has  been  declared  by 
the  courts  and,  incidentally  only,  a  study  of  the  "Negotiable 
Instruments  Law."  The  cases  will  be  found  to  illustrate  the 
several  phases  of  the  negotiable  contract  and  to  be  arranged,  I 
believe,  in  such  an  order  as  to  show,  in  sequence,  the  liabilities 
and  rights  of  parties  to  Negotiable  Instruments.  As  to  selection 
and  arrangement  they  are  submitted  to  the  test  of  actual  use.  It 
is  my  hope,  if  not  my  expectation,  that  when  the  plan  exemplified 
by  this  volume  is  put  to  the  test  of  actual  use  it  will  be  found  of 
service  to  all  who  seek  to  acquire  a  comprehensive  knowledge  of 
the  law  of  Negotiable  Instruments. 

I  am  under  obligations  to  Mr.  H.  Gerald  Chapin  of  New 
York  City,  for  valuable  suggestions,  and  to  Mr.  Oscar  E.  Waer 
of  the  Michigan  Bar,  and  Mr.  Ralph  M.  Tate  of  the  law  class  of 
1907,  University  of  Michigan,  for  valuable  assistance  in  the  prep- 
aration of  this  work,  obligations  which  I  acknowledge  with 
grateful  appreciation. 

ROBERT  E.  BUNKER. 

Ann  Arbor,  Michigan, 
October  1,  1906. 


m 


TABLE  OF  CONTENTS 


TITLE  I— HISTORY  OF  THE  LAW   MERCHANT. 
TITLE  II— THE  NEGOTIABLE  INSTRUMENT  A  CONTRACT. 
Sec.   i — In  General — 

Sec.  2 — General  Requisites — 

The  Instrument  Must  be  in  Writing. 

The  Instrument  Must  be  Signed. 

Must  Contain  an  Unconditional  Promise  or  Order. 

Signing  in  Representative  Capacity. 

Indication  of  a  Particular  Fund  Out  of  Which  Reimbursement  is 

to  be  Made. 
Statement  of  the  Transaction  Which  Gave  Rise  to  Instrument. 
The  Sum  Must  be  Certain. 
May  be  Payable  by  Stated  Instalments. 
Instrument   Payable  in   Exchange  is   Not   Negotiable. 
The  Sum  is  Certain  Though  Payable  With  Costs  of  Collection  or 

an  Attorney's  Fee. 
Instrument  Must  be  Payable  in  Money. 
Must  be  Payable  on  Demand  or  at  a  Fixed  or  Determinable  Future 

Time. 
Instrument  May  be  Payable  On  or  Before  a  Fixed  Time. 
May  be  Payable  After  the  Occurrence  of  a  Specified  Event  Which 

is  Sure  to  Happen,  Though  the  Time  of  Happening  be  Uncer- 
tain. 
Must  be  Payable  to  Order  or  to  Bearer. 
Drawee  Must  be  Named  or  Otherwise  Indicated. 
Provision  Giving  the  Holder  an  Election  to  Require  Something  to 

be  Done  in  Lieu  of  Payment  of  Money. 
.Presence  of  Seal  On  Instrument. 
Indorsement    After    Dishonor     Makes     Instrument     Payable     on 

Demand  as  to  Such  Indorser. 
Payee  Must  be  Indicated  With  Reasonable  Certainty. 
Instrument  Payable  to  Order  of  Fictitious  Person. 
Filling  up  Blanks. 

Incomplete  Instrument  Not  Delivered. 
Signing  In  Trade  or  Assumed  Name. 
Signature  by  Procuration. 
Effect  of  Indorsement  By  Infant. 
Forged  Signatures. 
Bills  In  a  Set. 

v 


vi  Table  of  Contents 

Sec.  3 — Delivery — 

Delivery  Essential  to  Completion  of  Contract. 
Presumption  of  Delivery. 

Sec.  4 — Consideration — 

Presumption  of  Consideration. 

What  Constitutes  Consideration. 

What  Constitutes  Holder  for  Value. 

When  Lien  On  Instrument  Constitutes  Holder  for  Value. 

Sec.  5 — Contract   of    Primary    Parties — 
Contract  of  the  Maker. 
Admissions  of  the  Maker. 
Contract  of  the  Acceptor. 
Admissions  of  the  Acceptor. 
Contract  of  the  Certifier. 

Where  Holder  Procures  Check  to   Be  Certified. 
Where  Drawer  Procures  Check  to  Be  Certified. 
Contract  of  the  Drawer  When  He  Draws  On  Himself. 
Contract  of  Drawer  as  Executor  or  Trustee  of  Drawee's  Estate. 
Contract  of  Drawer  Without  Right  to  Expect  Acceptance. 

Sec.  6 — Of  Negotiation  in  General — 
Indorsement  and  Delivery. 
Irregular  Forms  of  Indorsement. 
Indorsement  Must  Be  of  Entire  Instrument. 
Instrument  Indorsed  in  Blank  and  Later  Indorsed  Specially. 
Changing  a  Blank  Into  a  Special  Indorsement. 
The  Qualified  Indorsement. 
The  Conditional  Indorsement. 
The  Restrictive  Indorsement. 

Indorsement  Constituting  the  Indorsee  the  Agent  of  the  Indorser. 
Indorsement  Vesting  Title  In  indorsee  In  Trust. 
Indorsement  Without  Words  of  Negotiability. 
Indorsement  by   Partners. 
Indorsement  by  Joint  Payees  Not  Partners. 
Indorsement  by  Cashier  of  Bank. 
Continuation  of  Negotiable  Character  of  Instrument. 
Transfer  of  Instrument  Without  Indorsement. 
Transfer  by  Delivery. 

Sec.  7 — Contract  of  Secondary  Parties — 
Contract  of  the  Drawer. 
Admissions  of  the  Drawer. 
Contract  of  the  General  Indorser. 
Warranties  of  the  General  Indorser. 
Contract  of  the  Irregular  Indorser. 


Table  of  Contents  vii 

Sec.  8 — Presentment  and  Demand — 

Presentment  to  Principal  Debtor  Not  Necessary. 

Time  of  Presentment. 

Where  and  to  Whom  Presentment  Should  be  Made. 

Presentment  Where  Person  Primarily  Liable  is  Dead. 

Presentment  to  Partners. 

Presentment  to  Joint  Debtors. 

Presentment  by  Whom. 

Instrument  Must  be  Exhibited. 

Presentment  Where  Instrument   Payable  at  Bank. 

When  Presentment  Not  Required  to  Charge  Indorser. 

Excuse  for  Failure  to  Make  Presentment  in  Due  Time. 

Waiver  of  Presentment  and  Demand. 

Sec.  9 — Protest — 

General  Requisites  of  the  Protest. 

Sec.  10 — Notice  of  Dishonor — 
Form  of  the  Notice. 
By  Whom  Notice  Given. 
Notice  by  Agent. 
Notice  to  Whom. 
Notice  by  Inurement. 
Notice  to  Partners. 
Notice  to  Bankrupt. 
Notice  by  Telegraph. 
Where  Notice  Must  be  Sent. 
Notices   to  One   Indorser  for  Distribution   and   Delivery  to   Co- 

indorsers. 
Time  Within  Which  Notice  Must  be  Sent. 
Seasonable  Notice. 
Where  Notice  Must  be  Sent. 
Waiver  of  Notice  Contained  in  Instrument. 
Oral  Waiver. 

When  Notice  Dispensed  With. 
Waiver  by  Implication. 
Agreements  to  Waive  Strictly  Construed. 
Excuse  of  Notice  Permanently  or  Temporarily. 
Where  Notice  Need  Not  be  Given  to  Indorser. 
Due  Course,  Takes  Free  From  Equities. 

Sec.  ii — Contract  of  the  Vendor — Qualified   Indorser  and  Transferrer  by 
Delivery. 

Sec.  12 — Contract  of  Accommodation  Parties. 

Sec.  13 — Contract  of  Surety  or  Guarantor. 


i  Table  of  Contents 

riTLE  III— RIGHTS  OF  THE  HOLDER. 

Right  to  Sue  and  Receive  Payment. 

I  [older  in   Due  Course. 

What  Constitutes  Notice  of  Defect. 

Payee  as  Holder  in  Due  Course. 

When  Person  Not  Deemed  Holder  in  Due  Course. 

Notice  Before  Full  Amount  Paid. 

Fraud   Amounting  to  Want  of  Contract;   When   Title  Defective. 

Holder  in  Due  Course  Takes  Free  From  Equities. 

Holder    Deriving   Title   Through    Holder   in    Due   Course    Takes 

Free  From  Equities. 
Payee  Deriving  Title  From  Holder  in  Due  Course  Does  Not  Take 

Free  From  Equities. 
Holder  Presumed  to  be  Holder  in  Due  Course. 

TITLE  IV— DISCHARGE  OF  NEGOTIABLE  INSTRUMENTS. 

Discharge  of  Party  Primarily  Liable. 
Discharge  of  Party  Secondarily  Liable 
Rights  of  Party  Paying  Instrument. 
Renunciation  by  Holder. 
Effect  of  Alteration. 

TITLE  V— CONFLICT  OF  LAWS. 

What  Law  Governs  the  Contract — In  General. 
What  Law  Governs  Contract  of  Maker  or  Acceptor. 
What  Law  Governs  Contract  of  Drawer  or  Indorser. 
What  Law  Governs  Procedure  and  Remedy. 


SECTIONS  OF  THE  STATUTE 


CASES     ILLUSTRATIVE     OF     THE     LAW  OF     NEGOTIABLE     INSTRUMENTS     AS 

EXPRESSED    IN    THE    FOLLOWING    SECTIONS    OF    THE    STATUTE: 

SEC.                                                                        PAGE  SEC.                                                                         PAGE 

3-1 38,  40,  41    61 566 

3_2 43,  63,  75    62 207,  209,  210 

3-3 80    63 259,  261,  321,  324,  330,  331 

3-4 86,  460    64 212,  215,  219 

4-3 64    64-1 224,  227,  236 

4-4 66    65 498,  500 

4-5 67    66 209 

5-2 59    67 465,  467,  471,  480,  481 

6-2 82    68 344,  345 

6-3 84   ^68-2 332,  335 

7-4 90    72 347 

8-4 96    74 350,  351,  355,  358,  369 

9-2 97    75 35i,  355-  358 

10-6 99    76 377 

11-3 I05    77 380 

16 116    78 363 

17 I25.  130    79 365 

18 153,  159,  160    80 367 

20 136    82 420 

22 46,  52,  56    83 384,  392 

23 138   \84-3 396,  400 

24 141   ^1 418 

25 143-  148   •  92 413,  415,  435 

26 165    93 415 

27 171,  176,  186    94 413 

28 193    95 413 

29 202,  203    98 407,  426 

31 420,  484,  487,  492,  495,  497   101 365 

^52 266,  268,  320   -103 420 

/  33 270,  274   104 437,  438 

34 276   104-6 369 

36 277   107 384 

37 280   no 431,  444 

38 293   1 10-3 426 

38-2 296,  297   in 449,  452,  456 

38-3 97,  30i   112 447 

40 287   114 384.  392,  454 

41 291   115 384,  392 

43 305,  307   116-1 259 

44 3°8   1 16-3 261 

49 97   1 16-4 264 

51 311)  3l5       117 400,  420 

53 507   121 571,  574,  576,  578,  580,  584 

54 5io.  5L1,  5i6,  535   122 588,  593,  596,  600,  602 

54-3 534   123 606,  611.  612 

55 54i   124 614,  618 

56 546   126 549,  624.  627 

57 549   139 460 

58 520,  525,  531,  534   180-185 150 

59 556   189 240 

60 561,  564   190 253,  256 


TABLE  OF  CASES 


Arnold  v.  Dresser 367 

Attwood  v.  Munnings 138 

Averett's  Adm'r  v.  Booker 165 

Aymar  v.  Sheldon 649 

Bacon  v.  Hanna 45  j 

Bank  v.   Baldwin 369 

Bank  v.  Bingham 315 

Bank  v.  Carter 215 

Bank  v.  Clark 52 

Bank  v.   Cnmings 492 

Bank  v.  Fearing 345 

Bank  v.  Heuschen 365 

Bank  v.  Johnson 593 

Bank  v.  Jones 415 

Bank  v.  Junk  Bros 420 

Bank  v.  Kettering 449 

Bank  v.  Lange 510 

Bank  v.  Leach 253 

Bank  v.  Neal 116 

Bank  v.  Norton 384 

Rank  v.  Pierce 580 

Bank  v.   Sleight 600 

Bank  v.  Slette 66 

Bank  v.  Snow 160 

Bank  v.  Toplitz 484 

Bartlett  v.  Robinson 431 

Baxendale  v.  Bennett 125 

Beattie  v.  Bank 143 

Bickford  v.  Gibbs 498 

Bitzer   v.    Wagar 320 

Blaine  v.  Bourne 301 

Blenn  v.  Lyford 612 

Boston  St'l  &  Iron  Co.  v.  Steuer  535 

Brown  v.  Bank 268 

Brown  v.  Jordhal 96 

Brown  v.    Montgomery 481 

Burson  v.   Huntington 153 

Carroll  v.  Sweet 506 

Cathell  v.   Goodwin 264 

Caunt  v.   Thompson 261 

Challis  v.  McCrum 467 

Cheever  v.  Railroad  Co 525 

'Chicopee  Bank  v.  Phil.  Bank.  .  .  .   380 

Choteau  v.   Webster 444 

Coddington  v.  Bay 171 

Collins  v.  Manville 654 

Conine  v.  Railroad  Co ^ 

Cook  v.  Horn 64 

Corbett  v.  Fetzer 287 


Day  v.  Longhurst 268 

Dennistoun  v.  Stewart 404 

DeWitt  v.  Perkins 534 

Dodge  v.  Emerson 63 

Dresser  v.  Missouri   R.   R.   Con. 

Co 546 

Dunl'op  v.  Silver 1 

Dwight  v.  Pease 307 

Edie  &  Laird  v.  East  India  Co..  .  293 

Erwin  v.  Downs 480 

Estabrook  v.  Smith 305 

Everett  v.  Vendryes 647 

Fairchild  v.  Railroad  Co 259 

Farnsworth  v.  Allen 350 

Ferguson  v.   Staples 344 

Fielding  v.  Corry 426 

First    Nat.    Bank    v.    Greenville 

Nat.  Bank 75 

First  Nat.  Bank  v.  Northwestern 

Nat.  Bank 227 

Fisher  v.  Leland 513 

Folger  v.  Chase 308 

Freeman  v.   O'Brien 456 

French  v.  Jarvis 606 

Gardner  v.  Maynard 611 

Geary  v.  Physic 266 

George,  In  re 614 

Glidden  v.  Henry 80 

Goodwin  v.  Robarts 18 

Gordon  v.  Bank 99 

Gove  v.  Vining 452 

Gower  v.  Moore 363 

Grey  v.  Cooper 331 

Gumz  v.  Giegling 209 

Habersham  v.  Lehman 277 

Hagey  v.  Hill 602 

Hamilton  v.  Vought 520 

Hamlyn  &  Co.  v.  Talisker  Distil- 
lery  Co 629 

Hannum  v.  Richardson 465 

Harrisburg  Trust  Co.  v.  Shufeldt  347 

Hays  v.  Hathorn 507 

Head  v.   Hornblower 256 

Heuertematte  v.  Morris 236 

Hills  v.  Place 347 

Hodges  v.  Shuler 90 

Hoffman  v.  Bank 193 

Hughes  v.  Kiddell 276 


r.\i:i-i    O]    Cases 


Jennings  v.  Carlucci 563 

Jones  v.  Home  Furnishing  Co.  . .  136 

Junction  R.  R.  Co.  v.  Bank 642 

Kelley  v.  Hemmingway 84 

Kelley  v.  Whitney 516 

King  v.  Crowell 358 

Kinyon  v.  Wohlford 159 

Kohn  v.  Watkins 324 

Kost  v.  Bender 564 

La  Due  v.  Bank 541 

Lancy  v.  Clark 574 

Larkin  v.   Hardenbrook 576 

Leask  v.  Dew 618 

Leavitt  v.  Putnam 97 

Ledwich  v.   McKim 130 

Linn  v.  1 1  orton 418 

Littauer  v.  Goldman 471 

Locke  v.  Leonard  Silk  Co 296 

Lysaght  v.  Bryant 413 

Maffat  v.  Greene 487 

Markey  v.  Corey 270 

Martin   v.   Cole 280 

Mattison  v.  .Marks 82 

McCall  v.  Taylor 41 

McNamara  v.  Jose 531 

Mills  v.  Bank 407 

Minot  v.  Russ 256 

Mt.  Mansfield  Hotel  Co.  v.  Bailey  335 

Moskowitz  v.  Deutsch 627 

Munger  v.  Shannon 56 

Nat.  Park  Bk.  v.  Ninth  Nat.  Bk.  224 

Nelson  v.  Grondahl 351 

Obear  v.  Bank 657 

(  )ppenheimer  v.  Bank 67 

l's  Adm'r  v.  Artt 311 

Woven   Wire   Fence  Co.  v. 

Poole   571 

Paton  v.  Coil 566 

Phillips  v.  Dippo 447 

Pier  v.   1  leinrichshoffen 392 

Phillips  v.   Im  Thurn 330 

Phipp^  v.  Harding 634 

Porter  v.    Hardy 549 


Kaborg  v.  Paton 212 

Redfern  v.  Rosenthal 203 

Reg.  v.  Harper 40 

Roberts  v.  Hawkins 500 

Robertson  v.  Coleman 148 

Robertson   v.    Kensington 291 

Ross  v.  Hurd 396 

Schmittler  v.   Simon 46 

Schwartzman  v.   Post 584 

Shaw  v.  Pratt 578 

Shipman  v.  Bank 105 

Shutts  v.   Fingar 588 

Siegel  v.  Bank 59 

Simon  v.   Merritt 561 

Simpson  v.  Stackhouse 624 

Simpson  v.  Turney 437 

Smith  v.  Bayer 297 

Smith  v.  Poillon 438 

Soltykoff,  In  re 141 

bpencer  v.  Halpern 274 

Stoddard  v.  Kimball 202 

-■Sutherland  v.    Mead 186 

Swift,   In  re 400 

Swift  v.  Tyson 176 

Thatcher  v.  Bank 495 

Thomas  v.  Bishop 38 

True  v.  Bullard ^2 

Tucker  Mfg.  Co.  v.  Fairbanks...   219 

I  Fnion    Trust  Co.  v.  Bank 240 

Van  Brunt  v.  Vaughn 435 

Wallace  v.  Crilley 355 

Walsh   v.   P.latchley 150 

Walton  v.  Mascall 207 

Waring  v.  Betts 377 

Watrous  v.  Halbrook 88 

Westberg  v.  Chicago  L.  &  C.  Co.  460 

White  v.  Cushing 43 

Whitehead  v.  Walker :  .  321 

Whittier  v.  Eager 497 

Wirt   v.   Stubblefield 556 

Wohlke  v.   Kuhne 210 

Woodruff  v    Hill 633 

Zander  v.  Trust  Co 86 


CASES 

ON 


NEGOTIABLE  INSTRUMENTS 


TITLE  I. 

HISTORY  OF  THE  LAW  MERCHANT. 
Dunlop  v.  Silver,  i  Cranch  (App'x),  (1801),  367. 

The  case  was  this :  James  Cavan  made  a  promissory  note,  by 
which  he  promised  to  pay  to  Silver  et  at.,  or  order,  sixty  days 
after  date,  $600  for  value  received,  negotiable  at  the  Bank  of 
Alexandria.  Silver  et  al.  indorsed  the  note  to  Downing  &  Dowell 
in  these  words,  "pay  the  contents  to  Downing  &  Dowell,"  who 
indorsed,  "pay  the  contents  to  John  Dunlop  or  order."  Dunlop 
had  obtained  judgment  on  the  note  against  Cavan,  the  .maker,  who 
was  taken  upon  the  execution,  and  took  the  oath  of  an  insolvent 
debtor. 

The  declaration  had  two  counts.  1st.  A  special  count  stating 
the  making  and  indorsing  the  note,  the  suit,  judgment,  execution 
and  insolvency  of  Cavan,  by  reason  whereof  the  defendant  became 
liable,  etc.  2d.  Indebitatus  assumpsit  for  money  had  and  received. 
The  plea  was  non  assumpsit,  and  a  verdict  was  taken  for  the 
plaintiff  subject  to  the  opinion  of  the  Court,  upon  the  point, 
whether  the  holder  could  maintain  an  action  against  the  remote 
indorser  of  a  promissory  note.  *  *  *  *  The  principal  question 
then  is  whether  this  action  could  have  been  supported  in  England 
before  the  Statute  of  Anne.1 

I.  In  order  to  ascertain  how  the  law  stood  before  that  statute, 
it  may  be  necessary  to  examine  how  far  the  custom  of  merchants, 

1  See  text  of  this   statute — Intro.  Bunker's   Neg.   Ins.   18-20. 


2  History  of  the  Law  Merchant 

or  the  lex  mercatoria,  was  recognised  by  the  courts  of  justice  and 
by  what  means  the  common-law  forms  of  judicial  proceedings 
were  adapted  to  its  principles. 

A  distinction  seems  to  have  been  made,  very  early,  between 
the  contracts  of  merchants  (especially  of  foreign  merchants)  and 
those  of  other  people.  Nearly  six  hundred  years  ago  we  find 
their  "old  and  rightful  customs"  protected  by  the  great  charter  of 
English  liberties.  (Magna  Charta,  c.  30.)  Peculiar  privileges 
were  also  granted  them  more  than  500  years  ago  by  the  Statute 
of  Acton  Burnel,  de  mercatoribus  11  Edw.  I.,  and  the  Statute  of 
Merchants,  13  Edw.  I.  And  in  the  reign  of  Edw.  III.,  many 
statutes  were  made  for  their  encouragement,  in  some  of  which, 
particularly  27  Edw.  III.,  c.  19  and  20,  the  law  merchant  is 
expressly  recognised.  In  13  Edw.  VI.,  9,  10  (cited  by  Malloy, 
book  3,  c.  7,  §  15),  it  is  said,  that  "a  merchant  stranger  made  suit 
before  the  king's  privy  council,  for  certain  bales  of  silk,  feloniously 
taken  from  him,  wherein  it  was  moved  that  this  matter  should  be 
determined  at  common  law ;  but  the  lord  chancellor  answered, 
that  this  suit  is  brought  by  a  merchant  who  is  not  bound  to  sue 
according  to  the  law  of  the  land  nor  to  tarry  the  trial  of  twelve 
men."  The  custom  of  merchants  is  mentioned  in  34  Hen.  VIII., 
cited  in  Bro.  Abr.,  tit.  Customs,  pi.  59,  where  it  was  pleaded,  as 
a  custom  between  merchants  throughout  the  whole  realm,  and 
the  plea  was  adjudged  bad,  because  a  custom  throughout  the 
whole  realm  was  the  common  law.  And  for  a  long  time,  it  was 
thought  necessary  to  plead  it  as  a  custom  between  merchants  of 
particular  places,  viz.,  as  a  custom  among  merchants  residing  in 
London  and  merchants  in  Hamburg,  &c.  By  degrees,  however, 
the  courts  began  to  consider  it  as  a  general  custom.  Co.  Litt.  182, 
2  Inst.  404.  And  in  the  time  of  James  I.,  Ch.  J.  Hobart,  in  the 
case  of  Vanhcath  v.  Turner,  Winch  24,  said  that  "the  custom  of 
merchants  is  part  of  the  common  law,  of  which  the  judges  ought 
to  take  notice."  It  was  stilly  however,  deemed  necessary  to  set 
forth  the  custom  specially ;  and  in  that  form  the  precedents  con- 
tinned,  for  some  time  after.  Indeed,  the  pleadings  continued  in 
that  form,  long  after  the  courts  had  decided  it  to  be  unnecessary. 
Lord  Coke  in  his  Commentary  on  Littleton  (first  published  in 
1628),  folio  182a,  speaking  of  the  lex  mercatoria  says,  "Which, 
as  hath  been  said,  is  part  of  the  laws  of  this  realm."  See  also 
2  Inst.  404. 

But  after  this,  in  the  year  1640,  in  Eaglechild's  case  reported 
in  Hetly  167  and  Litt.  363,  6  Car.  I   (it  was  said  to  have  been 


Dunlop  v.  Silver  3 

ruled  in  B.  R.),  that  upon  a  bill  of  exchange  between  party  and 
party,  who  were  not  merchants,  there  cannot  be  a  declaration 
upon  the  law  merchant,  but  there  may  be  a  declaration  upon 
assumpsit,  and  give  the  acceptance  of  the  bill  in  evidence."  This 
decision  seemed  to  confine  the  operation  of  the  law  merchant,  not 
to  contracts  of  a  certain  description,  but  to  the  persons  of  mer- 
chants :  whereas,  the  custom  of  merchants  is  nothing  more  than 
a  rule  of  construction  of  certain  contracts.  Jac.  Law  Diet.  (Toml. 
edit.),  tit.  Custom  of  Merchants.  Eaglechild's  case,  however,  was 
overruled  in  18  Car.  II  B.  R.  (1666),  in  the  case  of  Woodward 
v.  Rowe,  2  Keb.  105,  132,  which  was  an  action  by  the  indorsee 
against  the  drawer  of  a  bill  of  exchange.  "The  plaintiff  counted 
on  the  custom  and  law  of  the  realm  that  if  any  man  writes  a  bill 
to  another,  then  if  he  to  whom  the  bill  is  directed  do  not  pay  for 
the  value  received  by  the  maker,  the  maker  of  such  bill  should 
pay."  "It  was  moved  in  arrest  of  judgment,  that  this  count  is  ill, 
the  general  custom  being  the  law ;  and  it  doth  not  appear  to  the 
court  that  there  is  any  such  law.  Sed  curia,  contra,  that  by  the 
common  law,  a  man  may  resort  to  him  that  received  the  money, 
if  he  to  whom  the  bill  was  directed  refuse."  It  was  afterwards 
moved  again,  that  this  "is  only  a  particular  custom  among  mer- 
chants, and  not  common  law ;  but,  per  curiam,  the  law  of 
merchants  is  the  law  of  the  land ;  and  the  custom  is  good  enough, 
generally,  for  any  man  without  naming  him  merchant;  judgment 
pro  plaintiff,  per  totam  curiam,  and  they  will  intend  that  he,  of 
whom  the  value  is  said  to  be  received  by  the  defendant,  was  the 
plaintiff's  servant. 

The  same  principle  was,  two  years  afterwards,  recognised  in 
an  Anonymous  case  (but  believed  to  be  Milton's  Case,  vide  1, 
Mod.  286)  in  the  Exchequer,  reported  in  Hadres  485,  Mich.  20 
Car.  II  (1668),  where  the  plaintiff  declared  on  the  custom  of 
England,  and  after  verdict,  Offfey  moved  in  arrest  of  judgment, 
because  the  "plaintiff  had  declared  that  per  consuetudinem  Ang- 
lice,  &c,  which  he  said  was  naught,  because  the  custom  of  England 
is  the  law  of  England,  and  what  the  judges  are  bound  to  take 
notice  of;  and  that,  therefore,  the  consuetudo  Anglicc  ought  to 
have  been  omitted."  But  the  Chief  Baron  said,  "but  for  the 
plaintiff's  inserting  the  custom  of  the  realm  into  his  declaration 
here,  I  hold  that  to  be  mere  surplusage  and  redundancy,  which 
does  not  vitiate  the  declaration."  And  again  he  says,  "it  were 
worth  while  to  inquire,  what  the  course  has  been  amongst  mer- 
chants ;   or  to  direct  an  issue   for  trial   of  the   custom   among 


4  History  of  the  Law  Merchant 

merchants ;  yet,  all  their  customs  we  cannot  know,  but  by  inform- 
ation." Afterwards,  in  declaring  their  opinions,  the  court  said 
"that  this  course  of  accepting  bills  being  a  general  custom  amongst 
all  traders,  both  within  and  without  the  realm,  and  having  every- 
where that  effect  to  make  the  acceptor  subject  to  pay  the  contents, 
the  Court  must  take  notice  of  that  custom." 

Notwithstanding  these  decisions,  the  question  was  again 
made,  about  twenty  years  afterwards,  in  the  case  of  Carter  v. 
Downish  (i  W.  &  M.  Anno  1688),  1  Show.  127,  in  the  Exche- 
quer, on  a  writ  of  error  from  the  king's  bench.  The  defendant 
had  covenanted  to  pay  all  bills  which  should  be  drawn  on  him, 
in  favor  of  the  plaintiff,  on  account  of  1000  kentals  of  fish,  and 
the  breach  assigned  was,  the  non-payment  of  a  certain  bill.  The 
defendants  pleaded,  that  the  plaintiff  by  indorsement  on  the  bill, 
according  to  the  custom  of  merchants,  appointed  the  payment  to 
Herbert  Aylwin,  or  his  order,  who  indorsed  it  to  Tassel,  to  whom 
the  defendant  paid  it.  To  this  plea  there  was  a  demurrer  and 
joinder.  One  of  the  errors  assigned  was,  that  the  defendant  had 
not  set  forth  a  particular  custom,  to  warrant  the  indorsement.  To 
which  it  was  answered  "that  the  law  and  custom  of  merchants 
warrant  the  indorsement  of  foreign  bills  of  exchange,  and  for 
that,  all  the  book  cases  on  foreign  bills  are  a  proof ;  and  that  such 
indorsement  doth  really  transfer  the  property  of  the  money,  or 
contents,  in  such  bills  to  the  indorsee,  and  that  all  this  law  of 
merchants  is  part  of  the  law  of  the  land,  and  the  judges  are 
obliged  to  take  notice  of  that  as  well  as  of  any  other  law."  *  *  * 

Three  years  after  this,  however,  the  point  was  again  made, 
in  the  case  of  Mogadara  v.  Holt  (3  W.  &  M.),  1  Show,  318  and 
12  Mod.  15,  16  (Anno  1699),  where  it  was  held  by  Holt,  Chief 
Justice,  and  the  whole  court,  "that  the  law  of  merchants  is  jus 
gentium,  and  a  part  of  common  law,  and  ergo,  we  ought  to  take 
notice  of  it  when  set  forth  in  pleading."  And  "though  the  plain- 
tiff hath  alleged  a  custom  contrary  to  fact,  yet  that  is  but  surplus- 
age ;  and  he  needed  not  to  have  alleged  a  custom."    Jud.  pro  qner. 

Not  satisfied  with  these  adjudications,  the  question  was 
again  agitated  two  years  afterwards,  in  the  exchequer,  on  a  writ 
of  error  from  the  king's  bench,  in  the  case  of  Williams  v.  Wil- 
liams, Carth.  269  (Pasch.  5  W.  &  M.,  Anno  1693)  where  "the 
only  error  insisted  on  was  that  the  plaintiff  had  not  declared  on 
the  custom  of  merchants  in  London,  or  any  other  particular  place 
(as  the  usual  way  is)  but  had  declared  on  a  custom  through  all 
England,  and  if  so.  'tis  the  common  law,  and  then  it  ought  not  to 


Dunlop  v.  Silver  5 

be  set  out  by  way  of  custom ;  and  if  it  is  a  custom,  then  it  ought 
to  be  laid  in  some  particular  place  from  whence  a  venue  might 
arise  to  try  it.  To  which  it  was  answered,  that  this  custom  of 
merchants,  concerning  bills  of  exchange,  is  part  of  the  common 
law  of  which  the  judges  will  take  notice  ex  officio,  as  it  was 
resolved  in  the  case  of  Carter  v.  Downish;  and  therefore,  it  is 
needless  to  set  forth  the  custom  specially  in  the  declaration,  for  it 
is  sufficient  to  say,  that  such  a  person  secundum  usum  et  consue- 
tudincm  mercatorum,  drew  the  bill;  therefore,  all  the  matter  in  the 
declaration  concerning  the  special  custom  was  merely  surplusage 
and  the  declaration  good  without  it.  The  judgment  was  affirmed.v 
*  *  *  Again,  in  Hilary  term  (B.  R.  8  and  9,  Wm.  Ill,  Anno 
1697)  Pinkney  v.  Hall,  1  Ld.  Raym.  175,  the  exception  was  taken, 
"that  the  declaration  being  per  consuetudinem  Anglice,  &c,  was 
ill,  because  the  custom  of  England  is  the  law  of  England,  of  which 
the  judges  ought  to  take  notice,  without  pleading.  Sed  non  allo- 
catur.    For  the  custom  is  not  restrained  to  any  particular  place." 

The  same  principles  were,  in  the  same  term,  in  the  common 
pleas,  held,  in  the  case  of  Bromwich  v.  Loyd  (Hilary  term,  8  Wm. 
Ill)  2  Lutw.,  1585,  where  Treby,  Chief  Justice,  said,  "That  bills 
of  exchange,  at  first  were  extended  only  to  merchant  strangers, 
and  afterwards  to  inland  bills  between  merchants  trading  one 
with  another  here  in  England ;  and  after  that,  to  all  traders  and 
dealers,  and  of  late,  to  all  persons  trading  or  not ;  and  there  was 
no  occasion  to  allege  any  custom :  and  that  was  not  denied  by  any 
of  the  other  justices." 

In  10  Wm.  Ill,  Anno  1698  B.  R.,  Hawkins  v.  Cardy,  1  Ld. 
Raym.  360,  an  action  was  brought  on  a  promissory  note,  made  by 
the  defendant,  and  indorsed  by  the  payee  to  the  plaintiff  for  part 
only,  who  declared  on  the  custom  of  merchants  for  such  an 
indorsement.  But  on  demurrer  it  was  adjudged  ill.  "For  a  man 
cannot  apportion  such  personal  contract,  for  he  cannot  make  a 
man  liable  to  two  actions,  where  by  contract  he  is  liable  but  to 
one."  And  Holt,  Chief  Justice,  said,  "This  is  not  a  particular 
local  custom,  but  the  custom  of  merchants,  of  which  the  law  takes 
notice;  and  therefore  the  court  cannot  take  the  custom  to  be  so. 
Judgment  for  defendant. 

Four  years  after  this,  in  the  case  of  B idler  v.  Crips,  6  Mod. 
29  (B.  R.  2  Ann.,  Anno  1702)  Lord  Holt  said,  "I  remember 
when  actions  upon  inland  bills  of  exchange  did  first  begin ;  and 
there  they  laid  a  particular  custom  between  London  and  Bristol, 
and  it  was  an  action  against  the  acceptor  *  *  *  And  in  my 
Lord  North's  time  it  was  said,  that  the  custom  in  that  case  was 


6  History  of  the  Law  Merchant 

part  of  the  common  law  of  England,  and  the  actions  since  became 
frequent  as  the  trade  of  the  nation  did  increase ;  and  all  the  differ- 
ence between  foreign  and  inland  bills  is,  that  foreign  bills  must 
be  protested  before  a  public  notary,  before  the  drawer  may  be 
charged ;  but  inland  bills  need  no  protest." 

In  the  year  1760  (1  Geo.  III.),  in  the  case  of  Edic  v.  The 
East  India  Company,  2  Burr.  1226,  Mr.  Justice  Foster  said, 
"Much  has  been  said  about  the  custom  of  merchants;  but  the 
custom  of  merchants  or  law  of  merchants,  is  the  law  of  the  king- 
dom, and  is  part  of  the  common  law."  *  *  *  And  in  the  same 
case,  p.  1228,  Mr.  Justice  Wilmot  says,  "The  custom  of  merchants 
is  part  of  the  law  of  England ;  and  courts  of  law  must  take  notice 
of  it  as  such."  *  *  *  In  the  case  of  Pillans  &  Ross  v.  Van 
Mierop  &  Hopkins,  3  Burr.  1669,  Lord  Mansfield  says,  "The 
law  of  merchants  and  the  law  of  the  land  is  the  same."     *     *     * 

This  chronological  list  of  authorities  tends  to  elucidate  the 
manner  in  which  the  custom  of  merchants  gained  an  establishment 
in  the  courts  of  law,  as  part  of  the  common  or  general  law  of  the 
land ;  and  shows  that  it  ought  not  to  be  considered  as  a  system 
contrary  to  the  common  law,  but  as  an  essential  constituent  part 
of  it,  and  that  it  always  was  of  co-equal  authority  so  far  as  sub- 
jects existed  for  it  to  act  upon.  The  reason  why  it  was  not 
recognized  by  the  courts,  and  reduced  to  a  regular  system,  as  soon 
as  the  laws  relating  to  real  estate,  and  pleas  of  the  crown,  seems 
to  be,  that  in  ancient  times,  the  questions  of  a  mercantile  nature, 
in  the  courts  of  justice,  bore  no  proportion  to  those  relating  to 
the  former  subjects.  Before  the  time  of  James  I.,  we  have 
scarcely  a  mercantile  case  in  the  books ;  and  yet,  long  before  that 
time,  the  laws  respecting  real  estates  and  the  criminal  code  were 
nearly  as  well  understood  as  they  are  at  this  day.     *     *     * 

Another  reason,  perhaps,  why  we  see  so  much  tardiness  in 
the  courts  in  admitting  the  principles  of  commercial  law  in  prac- 
tice, has  been  the  obstinacy  of  judicial  forms  of  process,  and  the 
difficulty  of  adapting  them  to  those  principles  which  were  not 
judicially  established,  until  after  those  forms  had  acquired  a  kind 
of  sanctity  from  their  long  use.  *  *  *  It  required  the  tran- 
scendant  talents,  and  the  confidence  in  those  talents,  which  were 
possessed  by  Lord  Mansfield  to  remove  those  obstructions.  When 
he  ascended  the  bench  he  found  justice  fettered  in  the  forms  of 
law.  It  was  his  task  to  burst  those  fetters  and  to  transform  the 
chains  into  instruments  of  substantial  justice.  From  that  time  a 
new  era  commenced  in  the  history  of  English  jurisprudence.  His 
sagacitv  discovered  those  intermediate  terms,  those  minor  propo- 


Dunlop  v.  Silver  7 

sitions,  which  seemed  wanting  to  connect  the  newly-developed 
principles  of  commercial  law  with  the  ancient  doctrines  of  the 
common  law,  and  to  adapt  the  accustomed  forms  to  the  great  and 
important  purposes  of  substantial  justice  in  mercantile  tran- 
sactions. 

II.  Forms  of  pleading  often  tend  to  elucidate  the  law.  By 
observing  the  forms  of  declarations,  which  have,  from  time  to 
time  been  adapted,  in  actions  upon  bills  of  exchange,  we  may  per- 
haps discover  the  steps  by  which  the  courts  allowed  actions  to  be 
brought  upon  them  as  substantive  causes  of  action  without 
alleging  any  consideration  for  the  making  or  accepting  them. 
The  first  forms  which  were  used  take  no  notice  of  the  custom  of 
merchants  as  creating  a  liability  distinct  from  that  which  arises  at 
common  law ;  but  by  making  use  of  several  fictions,  bring  the  case 
within  the  general  principles  of  actions  of  assumpsit.  The  oldest 
form  which  is  recollected  is  to  be  found  in  Rastell's  Entries  fol.  10 
(a),  under  the  head,  "Action  on  the  case  upon  promise  to  pay 
money."  Rastell  finished  his  book,  as  appears  by  his  preface,  on 
the  28th  of  March,  1564,  and  gathered  his  forms  from  four  old 
books  of  precedents,  then  existing.  This  declaration  sets  forth 
that  A  complains  of  B,  &c,  for  that  whereas  the  said  A,  by  a 
certain  I  C,  his  sufficient  attorney,  factor  and  deputy  in  this 
behalf,  on  such  a  day  and  year,  at  L.,  at  the  special  instance  and 
request  of  the  said  B,  had  delivered  to  the  said  B,  by  the  hand  of 
the  said  I  C,  to  the  proper  use  of  the  said  B,  noi  8  s  4d,  lawful 
money  of  England;  for  which  said  110/  8s  4d,  so  to  the  said 
B  delivered,  he  the  said  B,  then  and  there,  to  the  said  I  C 
(then  being  the  sufficient  attorney,  factor  and  deputy  of  the  said 
A  in  this  behalf)  faithfully  promised  and  undertook,  that  a  certain 
John  of  G.  well  and  faithfully  would  content  and  pay  to  Reginald 
S.  (on  such  a  day  and  year,  and  always  afterwards,  hitherto  the 
sufficient  deputy,  factor  and  attorney  of  the  said  A  in  this  behalf) 
443  2-3  ducats,  on  a  certain  day  in  the  declaration  mentioned. 
And  if  the  aforesaid  John  of  G.  should  not  pay  and  content  the  said 
Reginald  S.  the  said  443  2-3  ducats,  at  the  time  above  limited,  that 
then  the  said  B  would  well  and  faithfully  pay  and  content  the  said 
A  110/  8s  4d  lawful  money  of  England,  with  all  damages  and 
interest  thereof,  whenever  he  should  be  thereunto  by  the  said  A 
requested.  It  then  avers,  that  the  said  443  2-3  ducats  were  of  the 
value  of  110/  8s  4d,  lawful  money  of  England,  that  John  of  G. 
had  not  paid  the  ducats  to  Reginald  S.  and  that  if  he  had  paid 
them  "to  the  said  R,  I,  B.  and  associates  or  to  either  of  them,  then 


8  History  of  the  Law  Merchant 

the  said  443  2-3  ducats  would  have  come  to  the  benefit  and  profit 
of  the  said  A."     *     *     * 

This  declaration  seems  to  have  been  by  the  indorsee  of  a  bill 
of  exchange  against  the  drawer.  For  although  nothing  is  said  of 
a  bill  of  exchange,  or  of  the  custom  of  merchants,  yet  the  facts 
stated  will  apply  to  no  other  transaction.  It  appears  that  ducats 
were  to  be  given  for  pounds  sterling;  this  was  in  fact  an 
exchange.  Again  the  defendant  promised  to  repay  the  original 
money  advanced,  with  all  damages  and  interest ;  this  is  the  precise 
obligation  of  the  drawer  of  a  bill  of  exchange  according  to  the 
law  merchant.  Besides,  the  transaction,  if  literally  true,  as  set 
forth  in  the  declaration,  was,  at  least,  a  very  uncommon  one.  A 
is  supposed  to  make  I.  C.  his  attorney  for  the  purpose  of  paying 
110/  to  B,  and  to  receive  a  promise  from  B,  that  John  of  G. 
should  pay  to  Reginald  S.  443  ducats.  And  A  is  also  supposed  to 
have  made  Reginald  S.  his  attorney  for  the  purpose  of  recovering 
the  ducats.  Such  a  transaction  must  certainly  be  very  rare, 
especially,  as  it  was  so  much  easier  to  have  done  the  same  thing  in 
substance,  by  a  simple  bill  of  exchange.     *     *     * 

In  the  declaration  of  payee  v.  acceptor,  fol.  338a,  the  foreign 
merchant  who  paid  the  1400  crowns  to  the  drawer  of  the  bill  in 
France,  to  be  remitted  to  the  plaintiff  (the  payee),  in  England, 
is  stated  to  be  the  plaintiff's  factor ;  and  the  drawer  of  the  bill  is 
stated  to  be  the  factor  of  the  defendant  (the  acceptor),  so  that 
the  plaintiff,  by  his  factor,  is  supposed  to  pay  to  the  defendant, 
through  the  medium  of  the  defendant's  factor,  the  1400  crowns, 
in  consideration  of  which  it  is  averred  that  the  defendant  in 
England  promised  the  plaintiff  to  pay  him  414/  3s  4d,  lawful 
money  of  England. 

This  declaration  sets  forth,  that  whereas,  the  plaintiff,  on  the 
10th  of  June,  37  Eliz.,  at  Rochelle,  in  France,  in  parts  beyond 
seas,  by  the  hands  of  a  certain  T.  S.,  then  the  factor  of  the  plain- 
tiff, at  the  request  of  a  certain  R.  W.,  then  the  factor  of  the 
defendant,  delivered  and  paid  to  the  said  R.  W.,  then  factor  of 
the  defendant,  to  the  use  of  the  defendant,  as  much  ready  money 
as  amounted  to  1400  French  crowns,  of  the  money  of  France,  in 
parts  beyond  sea,  at  the  rate  of  5s  nd,  lawful  money  of  England, 
for  each  French  crown.  And  thereupon,  the  said  R.  W.,  at 
Rochelle  aforesaid,  then  delivered  to  the  said  T.  S.  three  bills  of 
exchange,  viz.,  first,  second  and  third.  In  the  first  of  which  bills 
of  exchange,  the  said  R.  W.  requested  the  defendant  to  pay  to 
the  plaintiff  at  L.  414/  3s  4d  lawful  money  of  England  at  the  end 
of  thirty  days  next  after  sight  of  that  bill  of  exchange  (the  second 


Dunlop  v.  Silver  9 

and  third  bills  to  the  plaintiff  not  paid).  It  then  sets  forth  the 
tenor  of  the  second  and  third  bills  and  then  avers  that  the  defend- 
ant, on  the  day  and  year  first  aforesaid,  at  the  city  of  E.  *  *  * 
in  consideration  thereof,  undertook  and  to  the  plaintiff  then  and 
there  and  faithfully  promised,  that  he,  the  defendant,  well  and 
faithfully  would  pay  to  the  plaintiff,  to  the  plaintiff's  use,  at 
the  City  of  E.  aforesaid  *  *  *  by  way  of  exchange  accord- 
ing to  the  usage  of  merchants,  the  aforesaid  414/  3s  4d  lawful 
money  of  England,  at  the  end  of  thirty  days  next  after  sight  of 
any  of  the  bills  of  exchange  aforesaid;  and  the  plaintiff  in  fact 
saith,  that  afterwards,  viz.,  on  the  1st  of  September,  in  the  year 
aforesaid  at  &c,  the  first  of  said  bills  came  to  the  sight  of,  and 
was  then  and  there  shown  to,  the  defendant,  yet  the  defendant  not 
regarding,  &c,  but  contriving,  &c,  did  not  pay  the  said  414/  3s  4d, 
&c,  at  the  end  of  said  thirty  days,  &c.  *  *  *  In  this  declar- 
ation, it  will  be  perceived  that  the  custom  of  merchants  is  not 
alleged  as  the  foundation  of  the  action  or  the  cause  of  liability  of 
the  defendant ;  nor  is  it  stated  that  the  defendant  accepted  the  bill. 
But  the  plaintiff  grounds  his  action  upon  the  defendant's  promise 
to  pay  the  amount  mentioned  in  the  bill,  in  consideration  of  1400 
crowns  paid  to  his  use  in  France;  and  in  consideration  that  his 
factor  had  drawn  and  delivered  the  bills  to  the  plaintiff's  factor. 
This  idea  of  factorage  is  probably  a  fiction,  introduced  for  the 
purpose  of  adapting  the  custom  of  merchants  to  the  common  law 
forms,  and  to  show  a  sufficient  consideration  for  the  assumpsit. 
The  question  of  factorage  was  not  traversable ;  as  the  facts  of 
drawing  the  bill,  and  the  drawee's  acceptance,  were  sufficient  evi- 
dence of  the  drawer's  being  the  acceptor's  factor  quoad  hoc.  This 
fiction  might,  perhaps,  be  considered  as  part  of  the  custom  of 
merchants;  but  at  any  rate,  it  seems  to  have  been  considered 
necessary,  in  order  to  create  that  degree  of  privity  between  the 
payee  and  the  acceptor  which,  at  that  time,  was  supposed  neces- 
sary to  support  the  action  of  assumpsit. 

Both  this  and  the  former  are  declarations  at  common  law ;  that 
is  neither  of  them  is  aided  by  the  custom  of  merchants,  unless  the 
custom  may  be  considered  as  supporting  the  fiction  of  factorage. 
They  show,  also,  that  if  privity  of  contract  was  necessary  at  com- 
mon law,  to  support  the  action  of  assumpsit,  the  law  would  pre- 
sume a  privity  or  at  least  would  presume  facts  which  constituted 
a  privity,  between  the  payee  and  acceptor  or  between  an  indorsee 
and  a  drawer  of  a  bill  of  exchange. 

III.  It  is  not  ascertained  exactly  at  what  time  inland  bills 
first  came  into  use  in  England  or  at  what  period  they  were  first 


10  History  of  the  Law  Merchant 

considered  as  entitled  to  the  privileges  of  bills  of  exchange,  under 
the  law  merchant.  But  there  was  a  time  when  the  law  merchant 
was  considered  as  "confined  to  cases  where  one  of  the  parties  was 
a  merchant  stranger",  3  Woodeson,  109;  and  when  those  bills  of 
exchange  only  were  entitled  to  its  privileges,  one  of  the  parties  to 
which  was  a  foreign  merchant.  *  *  *  And  in  B idler  v. 
Crips,  6  Mod.  29  (2  Ann.)  Lord  Chief  Justice  Holt  said  he 
remembered  "when  actions  upon  inland  bills  of  exchange  first 
began." 

Perhaps  Lord  Holt  might  have  been  correct  as  to  the  time 
when  actions  upon  inland  bills  first  began,  or  rather  when  the  first 
notice  was  taken  of  a  difference  between  inland  and  foreign  bills ; 
but  it  appears  probable  that  inland  bills  were  in  use  much  before 
Lord  Holt's  remembrance.     *     *     * 

The  time  when  inland  bills  and  promissory  notes  began  to  be 
in  general  use  in  England  was  probably  about  the  year  1645  or 
1646.  *  *  *  Indeed  we  know  that  to  be  the  fact,  from  the 
cases  in  the  books ;  upon  examining  which,  we  shall  find,  that 
there  was  no  distinction  made  between  inland  bills  of  exchange 
and  promissory  notes ;  they  were  both  called  bills ;  they  were  both 
called  notes ;  sometimes  they  were  called  "bills  or  notes."  Neither 
the  word  "inland"  nor  the  word  "promissory"  was  at  this  time  in 
use  as  applied  to  distinguish  the  one  species  of  paper  from  the 
other.  The  term  "promissory  note"  does  not  seem  to  have 
obtained  a  general  use,  until  after  the  statute.  There  was  no  dis- 
tinction made  either  by  the  bench,  by  the  bar  or  by  merchants, 
between  a  promissory  note  and  an  inland  bill,  and  this  is  the  cause 
of  that  obscurity  in  the  reports  of  mercantile  cases  during  the 
reigns  of  Charles  II,  James  II  and  King  William,  of  which  Lord 
Mansfield  complained  so  much  in  the  case  of  Grant  v.  Vaughan,  3 
Burr.  1525  and  1  W.  Bl.  488;  where  he  says  that  in  all  the  cases 
in  King  William's  time  "there  is  great  confusion;  for  without 
searching  the  record,  one  cannot  tell  whether  they  arose  upon 
promissory  notes  or  inland  bills  of  exchange.  For  the  reporters 
do  not  express  themselves  with  sufficient  precision,  but  use  the 
words  'note'  and  'bill'  promiscuously."  This  want  of  precision  is 
apparent  enough  to  us  who  now. (since  the  decision  of  Lord  Holt 
in  the  case  of  Clerk  v.  Martin)  read  the  cases  decided  by  him 
before  that  time ;  but  at  the  time  of  reporting  them,  there  was  no 
want  of  precision  in  the  reporter,  for  there  was  not,  in  fact,  and 
never  had  been  suggested,  a  difference  in  law  between  a  promis- 
sory note  and  an  inland  bill.     They  both  came  into  use  at  the  same 


Dunlop  v.  Silver  11 

time,  were  of  equal  benefit  to  commerce,  depended  upon  the  same 
principles  and  were  supported  by  the  same  law. 

IV.  The  case  of  Edgar  v.  Chut,  or  Chat  v.  Edgar,  reported 
in  i  Keb.  592,  636  (Mich.  15  Car.  II,  Anno  1663),  seems  to  be  the 
first  in  the  books  which  appears  clearly  to  be  upon  an  inland  bill 
of  exchange.  Without  doubt,  many  had  preceded  it,  and  passed 
sub  silentio.  The  case  was  this :  A  butcher  had  bought  cattle  of 
a  grazier,  but  not  having  money  to  pay  for  them,  and  knowing 
that  the  parson  of  the  parish  had  money  in  London,  he  obtained 
(by  promising  to  pay  for  it)  the  parson's  order  or  bill  on  his  cor- 
respondent, a  merchant  in  London,  in  favor  of  the  grazier.  The 
parson  having  doubts  of  the  credit  of  the  butcher,  wrote  secretly 
to  his  correspondent,  not  to  pay  the  money  to  the  grazier,  until 
the  butcher  had  paid  the  parson.  In  consequence  of  which  the 
London  merchant  did  not  pay  the  draft,  and  the  grazier  brought 
his  suit  against  the  parson,  and  declared  on  the  custom  of 
merchants.  It  was  moved  in  arrest  of  judgment,  that  neither  the 
drawer  nor  the  payee  was  a  merchant ;  but  it  was  held  to  be  suffi- 
cient, that  the  drawee  was  a  merchant. 

Next  came  the  case  of  Woodward  v.  Row  (Mich.,  18  Car.  II, 
Anno  1666)  2  Keb.  105,  132,  in  which  the  court  said,  that  "the 
law  of  merchants  is  the  law  of  the  land,  and  the  custom  is  good 
enough  generally  for  any  man,  without  naming  him  merchant; 
and  they  will  intend  that  he  of  whom  the  value  is  said  to  be 
received  by  the  defendant,  was  the  plaintiff's  servant." 

The  next  is  Milton's  case  (Mich.,  20  Car.  II)  Hardr.  485, 
of  which  it  may  be  necessary  to  take  notice,  as  it  has  been  consid- 
ered as  a  leading  case,  and  as  having  established  some  principles 
upon  which  a  number  of  subsequent  cases  have  been  decided.  It 
was  an  action  of  debt,  in  the  exchequer,  upon  a  bill  of  exchange 
accepted.  The  plaintiff  declared,  that  by  the  custom  of  England, 
if  a  merchant  send  a  bill  of  exchange  to  another  merchant,  to  pay 
money  to  another  person,  and  the  bill  be  accepted,  that  he  who 
accepts  the  bill  does  thereby  become  chargeable  with  the  sum  there- 
in contained ;  and  that  a  certain  merchant  drew  a  bill  of  exchange 
upon  the  defendant,  payable  to  the  plaintiff,  which  bill  the  defend- 
ant accepted ;  per  quod  actio  acrcvit.  Upon  nil  debet  pleaded,  the 
verdict  was  for  the  plaintiff.  A  motion  was  made  in  arrest  of 
judgment,  and  one  of  the  reasons  assigned  was,  that  there  was 
"no  privity  between  the  plaintiff  and  defendant,"  "nor  any  contract 
in  deed  or  in  law." 

The  Chief  Baron,  among  other  things,  said,  that  "without 


12  History  of  the  Law  Merchant 

doubt,  if  the  common  law,  or  the  custom  of  the  place,  create  a 
duty,  debt  lies  for  it ;  as  in  the  case  of  a  toll  due  by  custom.  *  *  * 
But  the  great  question  here  is,  whether  or  no  a  debt  or  duty  be 
hereby  raised:  for  if  it  be  no  more  than  a  collateral  engagement, 
order  or  promise,  debt  lies  not,  as  in  the  case  that  has  been  cited, 
of  goods  delivered  by  A  to  B,  at  the  request  of  C,  which  C  prom- 
iseth  to  pay  for,  if  the  other  does  not ;  for  in  that  case  a  debt  or 
duty  does  not  arise  betwixt  A  and  C,  but  a  collateral  obligation 
only.  In  our  case,  the  acceptance  of  the  bill  amounts  clearly  to 
a  promise  to  pay  the  money ;  but  it  may  be  a  question  whether  it 
amounts  to  a  debt  or  not." 

Precedents  were  ordered  to  be  searched ;  but  none  being 
found,  the  court,  afterwards,  in  Hilary  term,  20  &  21  Car.  II., 
declared  their  opinions,  "that  an  action  of  debt  would  not  lie  upon 
a  bill  of  exchange  accepted,  against  the  acceptor ;  but  that  a  special 
action  upon  the  case  must  be  brought  against  him.  For  the  accept- 
ance does  not  create  a  duty,  no  more  than  a  promise  made  by  a 
stranger  to  pay,  &c,  if  the  creditor  will  forbear  his  debt.  And 
he  that  drew  the  bill  continues  debtor,  notwithstanding  the  accept- 
ance, which  makes  the  acceptor  liable  to  pay  it.  And  this  course 
of  accepting  bills,  being  a  general  custom  among  all  traders,  both 
within  and  without  the  realm,  and  having  everywhere  that  effect 
as  to  make  the  acceptor  liable  to  pay  the  contents,  the  court  must 
take  notice  of  that  custom ;  but  the  custom  does  not  extend  so  far 
as  to  create  a  debt;  it  only  makes  the  acceptor  onerabilis  to  pay 
the  money.  Though  custom  may  give  an  action  of  debt,  as  in  the 
case  of  toll ;  and  so  in  case  of  a  fine  for  a  copyhold.  Where- 
fore, and  because  no  precedent  could  be  produced  that  an  action 
of  debt  had  been  brought  upon  an  accepted  bill  of  exchange, 
judgment  was  arrested." 

The  ground  of  this  judgment  seems  to  be,  that  the  drawer  is 
the  original  debtor,  and  that  the  undertaking  of  the  acceptor  is 
only  to  pay  the  drawer's  debt ;  and  therefore,  is  a  collateral  and 
not  an  original  engagement.  If  the  court  were  mistaken  in  this 
position,  the  case  is  not  law ;  or,  at  least,  the  reason  of  the  case 
fails.  It  may  be  true,  that  the  drawer  is  the  original  debtor,  until 
the  bill  is  accepted ;  but  after  the  bill  is  accepted,  the  acceptor  is 
the  original  debtor,  and  the  undertaking  of  the  drawer  is  collat- 
eral, viz.,  to  pay  in  case  the  acceptor  does  not.     *     *     * 

(After  commenting  upon  numerous  cases,  the  court  con- 
tinues) :  We  have  now  examined  all  the  reported  cases  upon 
promissory  notes,  from  the  time  of  the  first  introduction  of  inland 


Dunlop  v.  Silver  13 

bills,  to  the  time  of  Lord  Holt's  decision  in  the  case  of  Clerke  v. 
Martin.  At  least,  if  any  others  are  to  be  found,  they  have  escaped 
a  diligent  search.  They  form  a  series  of  decisions  for  a  period  of 
more  than  thirty  years,  in  which  we  discover  an  uncommon  degree 
of  unanimity  as  well  as  of  uniformity.  We  find  the  law  clearly 
established  to  be  the  same  upon  promissory  notes  as  upon  inland 
bills;  and  we  find  no  evidence  that  the  latter  were  in  use  before 
the  former.  There  is  not  a  contradictory  case,  or  even  dictum, 
unless  we  consider  as  such  the  doubt  expressed  in  the  case  of 
Butcher  v.  Swift,  cited  by  Comyns ;  but  that  case  is  not  reported, 
and  therefore,  it  is  impossible  to  say,  upon  what  ground  the  doubt 
was  suggested.  The  cases  upon  promissory  notes  and  inland  bills 
go  to  establish  not  only  their  likeness  in  every  respect,  but  even 
their  identity ;  for  the  former  are  almost  uniformly  called  inland 
bills. 

V.  Upon  examining  the  printed  books  of  precedents,  during 
the  above  period,  we  shall  find  that  the  common  usage  was,  to 
declare  upon  a  promissory  note,  as  upon  an  inland  bill  of 
exchange.  *  *  *  (After  commenting  upon  various  prece- 
dents, the  court  continues)  :  Upon  a  review  of  this  list  of 
authorities  and  precedents,  we  are  at  a  loss  to  imagine  from  what 
motive,  and  upon  what  grounds,  Lord  Holt  could  at  once  under- 
take to  overrule  all  these  cases,  and  totally  change  the  law  as  to 
promissory  notes ;  and  why  he  should  admit  inland  bills  of 
exchange  to  be  within  the  custom  of  merchants,  and  deny  that 
privilege  to  promissory  notes ;  when  the  same  evidence  which 
proved  the  former  to  be  within  the  custom,  equally  proved  that  it 
extended  to  the  latter.  By  examining  the  books,  it  will  be  found, 
that  most  of  the  points  which  have  been  decided  respecting  inland 
bills  of  exchange,  have  been  decided  upon  cases  on  promissory 
notes.  If  he  considered  promissory  notes  as  a  new  invention, 
when  compared  with  inland  bills  of  exchange,  he  seems  to  have 
mistaken  the  fact;  for  the  probability  is,  that  the  former  are  the 
most  ancient,  or,  to  say  the  least,  are  of  equal  antiquity. 

But  let  us  proceed  to  examine  the  case  of  Clerke  v.  Martin 
(Pasch.,  i  Anne,  B.  R.,  2  Ld.  Raym.  757;  1  Salk.  129),  upon  which 
alone  is  founded  the  assertion  in  modern  books  "that  before  the 
statute  of  Anne,  promissory  notes  were  not  assignable  or  indor- 
sable  over,  within  the  custom  of  merchants,  so  as  to  enable  the 
indorsee  to  bring  an  action  in  his  own  name  against  the  maker." 
The  case  is  thus  reported  by  Lord  Raymond : 

"The  plaintiff  brought  an  action  upon  the  case,  against  the 
defendant,  upon  several  promises ;  one  count  was  upon  a  general 


14  History  of  the  Law  Merchant 

indebitatus  assumpsit  for  money  lent  to  the  defendant;  another 
was  upon  the  custom  of  merchants,  as  upon  a  hill  of  exchange ; 
and  showed  that  the  defendant  gave  a  note  subscribed  by  himself, 

I  iy  which  he  promised  to  pay to  the  plaintiff,  or  his  order, 

&c.  Upon  non  assumpsit,  a  verdict  was  given  for  the  plaintiff, 
and  entire  damages.  And  it  was  moved  in  arrest  of  judgment 
that  this  note  was  not  a  bill  of  exchange,  within  the  custom  of 
merchants,  and  therefore,  the  plaintiff,  having  declared  upon  it  as 
such,  was  wrong;  but  that  the  proper  way,  in  such  cases,  is  to 
declare  upon  a  general  indebitatus  assumpsit  for  money  lent,  and 
the  note  would  be  good  evidence  of  it. 

"But  it  was  argued  by  Sir  Bartholomew  Shower,  the  last 
Michalmas  term,  for  the  plaintiff,  that  this  note  being  payable  to 
the  plaintiff  or  his  order,  was  a  bill  of  exchange,  inasmuch  as,  by 
its  nature,  it  was  negotiable ;  and  that  distinguishes  it  from  a  note 
payable  to  I.  S.,  or  bearer,  which  he  admitted  was  not  a  bill  of 
exchange,  because  it  is  not  assignable  nor  indorsable  by  the  intent 
of  the  subscriber,  and  consequently,  not  negotiable,  and  there- 
fore, it  cannot  be  a  bill  of  exchange,  because  it  is  incident  to  the 
nature  of  a  bill  of  exchange  to  be  negotiable ;  but  here  this  bill 
is  negotiable,  for  if  it  had  been  indorsed  payable  to  I.  N.,  I.  N. 
might  have  brought  his  action  upon  it,  as  upon  a  bill  of  exchange, 
and  might  have  declared  upon  the  custom  of  merchants.  Why 
then  should  it  not  be,  before  such  indorsement,  a  bill  of  exchange 
to  the  plaintiff  himself,  since  the  defendant,  by  his  subscription, 
has  shown  his  intent  to  be  liable  to  the  payment  of  this  money  to 
the  plaintiff  or  his  order;  and  since  he  hath  thereby  agreed  that  it 
shall  be  assignable  over,  which  is,  by  consequence,  that  it  shall  be 
a  bill  of  exchange.  That  there  is  no  difference  in  reason, 
between  a  note  which  saith,  'I  promise  to  pay  to  I.  S.,  or  order,' 
&c,  and  a  note  which  saith,  'I  pray  to  pay  to  I.  S.,  or  order,' 
&c,  they  are  both  equally  negotiable,  and  to  make  such  a  note  a 
bill  of  exchange  can  be  no  wrong  to  the  defendant,  because  he, 
by  the  signing  of  the  note,  has  made  himself  to  that  purpose  a 
merchant  (2  Vent.  292,  Sarsficld  v.  Witherly),  and  has  given  his 
consent  that  his  note  shall  be  negotiated,  and  thereby  has 
subjected  himself  to  the  law  of  merchants." 

But  Holt,  Chief  Justice,  was  totis  viribus  against  the  action, 
and  said  that  this  could  not  be  a  bill  of  exchange.  That  the 
maintaining  of  these  actions  upon  such  notes  were  innovations 
upon  the  rules  of  the  common  law ;  and  that  it  amounted  to  a 
new  sort  of  specialty,  unknown  to  the  common  law,  and  invented 
in  Lombard  Street,  which  attempted,  in  these  matters  of  bills  of 


Dunlop  v.  Silver  15 

exchange,  to  give  laws  to  Westminster  Hall.  That  the  continuing 
to  declare  upon  these  notes,  upon  the  custom  of  merchants,  pro- 
ceeded upon  obstinacy  and  opinionativeness,  since  he  had  always 
expressed  his  opinion  against  them,  and  since  there  was  so  easy 
a  method  as  to  declare  upon  a  general  indebitatus  assumpsit  for 
money  lent,  &c.  As  to  the  case  of  Sarsfield  v.  Witherly,  he  said, 
he  was  not  satisfied  with  the  judgment  of  the  king's  bench,  and 
that  he  advised  the  bringing  of  a  writ  of  error.     *     *     * 

As  four  other  cases  are  reported  upon  this  subject,  prior  to 
the  statute  of,  Anne,  all  of  which  were  dependent  upon  this  of 
Clerke  v.  Martin,  it  may  be  proper  to  notice  what  fell  from  the 
court  in  each,  before  any  comments  are  made  on  that  case. 

(After  discussing  the  four  cases,  viz.,  Potter  v.  Pearson,  I 
Ld.  Raym.  774 ;  Williams  v.  Cutting,  2  Ld.  Raym.  825 ;  Burton 
v.  S outer,  2  Ld.  Raym.  825,  and  B  idler  v.  Crips,  6  Mod.  29,  the 
court  continues.)  These  five  cases,  viz.,  Clerke  v.  Martin,  Potter 
v.  Pearson,  Burton  v.  S outer,  Cutting  v.  Williams,  and  B  idler  v. 
Crips,  are  the  only  reported  cases  in  which  the  former  decisions 
were  overruled,  and  it  may  be  observed,  that  the  four  last  were 
decided  upon  the  authority  of  the  first,  which  is  to  be  considered 
as  the  leading  case;  and  it  is  in  that  case,  therefore,  that  we  are 
to  look  for  the  grounds  upon  which  so  great  a  change  of  the 
established  law  was  founded.  We  shall,  however,  consider  the 
reasons  that  are  scattered  among  the  whole,  as  having  concurred 
in  the  formation  of  Lord  Holt's  opinion.  In  the  first  place,  we 
find  an  assertion  of  his  lordship,  in  Clerke  v.  Martin,  "that  this 
note  could  not  be  a  bill  of  exchange,"  but  he  seems  to  have  been 
too  much  irritated,  at  that  time,  to  give  a  reason  for  the  assertion, 
or  to  recollect  that  in  the  case  of  Hill  v.  Lcivis,  upon  promissory 
notes,  he  had  said,  "that  goldsmiths'  bills  were  governed  by  the 
same  laws  and  customs  as  other  bills  of  exchange,"  and  that  the 
verdict  in  that  case  would  be  good,  "if  found  upon  bills  of 
exchange."  His  next  assertion  is,  "that  the  maintaining  these 
actions  upon  such  notes,  were  innovations  upon  the  rules  of  the 
common  law."  But  if,  as  we  have  shown,  the  custom  of  mer- 
chants is  a  part  of  the  common  law ;  if  promissory  notes  had 
always,  from  the  time  of  their  first  introduction,  been  adjudged 
to  be  as  much  within  the  custom  of  merchants  as  inland  bills  of 
exchange,  then  an  action  on  a  promissory  note  founded  on 
the  custom  was  not  more  an  innovation  than  a  like  action  upon 
an  inland  bill  of  exchange.  Besides  that  could  hardly  deserve 
the  name  of  innovation,  which  had  been  sanctioned  by  all  the 


16  History  of  the  Law  Merchant 

judges  of  England,  on  a  demurrer,  as  was  the  case  in  Williams 
v.  Williams. 

His  next  assertion  is,  "that  it  amounted  to  the  setting  up  a 
new  sort  of  specialty,  unknown  to  the  common  law,  and  invented 
in  Lombard  Street."  To  this,  it  may  be  answered,  that  it  did  not 
amount  to  the  setting  up  a  specialty,  because  the  consideration  of 
a  specialty  is  not  examinable  at  law ;  but  between  immediate 
parties  to  a  bill  of  exchange,  or  a  promissory  note,  the  defendant 
might  always  have  availed  himself  of  the  want  of  consideration. 
It  only  amounted,  at  most,  to  the  setting  up  a  promissory  note  as 
a  bill  of  exchange.  The  assertion  that  promissory  notes  were 
invented  in  Lombard  Street  is  certainly  not  correct,  for  Malynes 
mentions  them  as  in  use  in  foreign  countries,  and  as  being 
assignable  by  the  custom  of  merchants,  long  before  they  appear 
to  have  been  introduced  into  England.  The  other  assertions  of 
his  lordship  only  tend  to  show  a  degree  of  irritation  which  dero- 
gates from  the  respect  which  the  decision  might  otherwise 
deserve.     *     *     * 

Hence  then,  we  find,  from  an  examination  of  all  the  cases 
before  the  statute  of  Anne,  that  it  never  was  adjudged,  that  a 
promissory  note  for  money,  payable  to  order,  and  indorsed,  was 
not  an  inland  bill  of  exchange.  But  we  find,  that  the  contrary 
principle  had  been  recognised,  in  all  the  cases,  from  the  time  of 
the  first  introduction  of  inland  bills  and  promissory  notes,  to  the 
first  year  of  Queen  Anne,  and  that  in  one  of  them  it  had  been 
expressly  adjudged,  upon  demurrer  in  the  king's  bench,  and  the 
judgment  affirmed  upon  argument,  in  the  exchequer  chamber, 
before  all  the  judges  of  the  common  pleas  and  barons  of  the 
exchequer,  so  that  it  may  truly  be  said  to  have  been  solemnly 
adjudged  by  all  the  judges  of  England.  Principles  of  law  so 
established  are  not  to  be  shaken  by  the  breath  of  a  single  judge, 
however  great  may  be  his  learning,  his  talents  or  his  virtues. 
That  Lord  Holt  possessed  these  in  an  eminent  degree  will  never 
be  denied ;  but  he  was  not  exempt  from  human  infirmity.    *    *    * 

Lord  Hardwicke,  in  the  case  of  Wahnslcy  v.  Child  (Anno 
1749),  1  Ves.  346,  says,  "The  reason  of  making  the  statute  3 
and  4  Anne  arose  from  some  determinations,  in  the  beginning  of 
her  reign,  by  Holt,  Chief  Justice,  that  no  action  could  be  main- 
tained on  a  promissory  note,  nor  declaration  thereupon,  viz., 
Clerke  v.  Martin,  and  Potter  v.  Pearson,  1  Salk.  129,  which 
cases  produced  the  act,  as  the  act  itself  recites;  but  that  act  of 
parliament  did  not  alter,  but  that  still  an  indebitatus  assumpsit 
may  be  brought,  and  the  note  given  in  evidence,  or  proved  if 


Dunlop  v.  Silver  17 

lost."  From  this  concurrent  testimony  it  is  apparent,  that  the 
case  of  Clcrke  v.  Martin  was  a  hasty,  intemperate  decision  of 
Lord  Holt,  which  was  acquiesced  in  by  the  other  judges,  in  con- 
sequence of  his  overbearing  authority,  "which  made  others  yield 
to  him" ;  and  that  he  so  "pertinaciously"  adhered  to  his  opinion, 
as  to  render  it  necessary  to  apply  to  parliament  to  overrule  him. 

This,  it  is  believed,  is  the  true  origin  of  the  statute  of  Anne, 
which  did  not  enact  a  new  law,  but  simply  confirmed  the  old ; 
the  authority  of  which  had  been  shaken  by  the  late  decision  of 
Lord  Holt.     *     *     * 

It  follows,  therefore,  that  it  was  passed  simply  to  restore  the 
old  order  of  things,  which   had  been   disturbed   by  Lord  Holt. 

The  only  real  effect  of  the  statute  was  to  alter  a  few  words 
in  the  declaration.  The  old  forms  allege  that  the  defendant 
became  liable  by  reason  of  the  custom  of  merchants,  the  new 
say  that  he  became  liable  by  force  of  the  statute.  Even  Lord 
Holt  himself  always  admitted,  that  an  indebitatus  assumpsit  for 
money  had  and  received,  or  money  lent,  would  lie,  and  the  note 
'would  be  good  evidence  of  it.  His  objections  were  only  to  the 
form  of  the  action,  and  not  to  the  liability  of  the  parties. 

A  promissory  note  was  always  as  much  a  mercantile  instru- 
ment as  an  inland  bill  of  exchange,  and  there  certainly  seems  to  be 
more  evidence  that  the  former  is  within  the  custom  of  merchants 
than  the  latter,  and  that  it  was  so  at  an  earlier  period,  on  the  con- 
tinent of  Europe,  from  whence  it  was  introduced  into  England; 
and  when  introduced,  it  came  attended  with  all  the  obligations 
annexed,  which  the  custom  had  attached  to  it. 

We,  sometimes,  in  modern  books,  meet  with  an  assertion 
that  a  promissory  note  was  not  negotiable  at  common  law ;  this 
may  be  true,  because  a  promissory  note  was  not  known  at  com- 
mon law,  if  from  the  term  common  law  we  exclude  the  idea  of 
the  custom  of  merchants.  It  was  a  mercantile  instrument,  intro- 
duced under  the  custom  of  merchants.  But  if  the  custom  of 
merchants  is  considered,  as  it  really  is,  a  part  of  the  common  law, 
then  the  assertion  that  a  promissory  note  was  not  negotiable  at 
the  common  law,  is  not  correct. 


18  History  of  the  Law  Merchant 


Goodwin  v.  Robarts,  L.  R.  10  Exchequer  (18/5),  337. 

The  facts  are  sufficiently  stated  in  the  opinion 
Benjamin   (Q.  C),  for  the  plaintiff. 
Brown  (Q.  C),  for  the  defendant. 

July  7.  The  judgment  of  the  Court  (Cockburn,  C.J.,  Mel- 
lor,  Lush,  Brett,  and  Lindley,  JJ.)  was  delivered  by 

Cockburn,  C.J.  The  question  for  our  decision  in  this  case  is 
whether  certain  scrip  issued  by  the  authority  of  the  Russian  Gov- 
ernment, and  certain  other  scrip  issued  by  the  authority  of  the 
Austro-Hungarian  Government,  is  a  negotiable  security  for  money, 
so  that  the  transfer  of  it  by  a  person  not  being  the  true  owner  to 
a  bona  fide  holder,  for  value,  can  confer  a  good  title  on  the  latter. 

The  scrip  in  question  was  bought  by  the  plaintiff  through  one 
Clayton,  a  stockbroker,  and  was  allowed  to  remain  in  Clayton's 
hands,  who  unlawfully  pledged  it  with  the  defendants,  who  are 
bankers,  as  security  for  a  loan  of  money.  Clayton  having  become 
bankrupt  and  having  absconded,  the  defendants  sold  the  scrip  at 
the  market  price  of  the  day,  and  the  plaintiff  brings  his  action  to 
recover  the  amount  realised  on  such  sale. 

The  scrip  in  question  was  in  the  following  form : — 

"1873  .  C.  1873.  Imperial  Government  of  Russia. 
Issue  of  15,000,000/.  sterling  nominal  capital  in  5  per  cent,  con- 
solidated bonds  of  1873.  Negotiated  by  Messrs.  N.  M.  Roth- 
schild &  Sons,  London,  and  Messrs.  de  Rothschild  Brothers,  Paris. 
Bearing  interest  half-yearly,  payable  in  London  from  1st  of  De- 
cember, 1873.    Scrip  for  one  hundred  pounds  stock,  No. . 

"Received  the  sum  of  twenty  pounds,  being  the  first  instal- 
ment of  20  per  cent,  upon  one  hundred  pounds  stock,  and  on 
payment  of  the  remaining  instalments  at  the  period  specified,  the 
bearer  will  be  entitled  to  receive  a  definitive  bond  or  bonds  for  one 
hundred  pounds  after  receipt  thereof  from  the  Imperial  Govern- 
ment. 

"London,  1st  December,  1873.  The  instalments  are  to  be 
paid  at  our  office  as  follows:  15/.  per  cent.,  or  15/.,  on  the  5th 
February,  1874;  15/.  per  cent.,  or  15/.,  on  the  9th  of  March,  1874; 
20/.  per  cent.,  or  20/.,  on  the  2nd  May,  1874;  23/.  per  cent,  or  23/., 
on  the  9th  June,  1874.  Subscribers  may  pay  the  same,  under  a 
discount  at  3  per  cent,  per  annum,  on  any  Monday  or  Thursday 
after  the  16th  instant. 


Goodwin  v.  Robarts  19 

"In  default  of  payment  of  these  instalments  at  the  proper 
dates,  all  previous  payments  will  be  liable  to  forfeiture."  Then 
follow  four  other  receipts  for  20/.  each,  making  up  the  100/.,  for 
which  the  bond  is  afterwards  to  be  given. 

The  scrip  issued  by  the  authority  of  the  Austro-Hungarian 
Government  was  in  a  precisely  similar  form. 

The  scrip  in  question  was  issued  by  Messrs.  de  Rothschild  as 
the  agents  of  the  Russian  and  Austro-Hungarian  governments, 
they  being  employed  by  these  governments  to  negotiate  and  raise 
a  loan  for  them  respectively  on  government  bonds,  bearing 
interest,  to  be  afterwards  issued  in  exchange  for  the  scrip  when  all 
the  instalments  of  the  sum  for  which  the  scrip  was  issued  should 
have  been  paid  up.  No  question  is  raised  as  to  the  fact  of  Messrs. 
de  Rothschild  having  acted  in  the  matter  as  agents  of  the  two 
governments,  or  of  the  scrip  having  been  issued  by  the  authority 
of  the  latter. 

The  contention  on  the  part  of  the  plaintiff  was  that,  scrip  of 
this  description  not  coming  under  the  category  of  any  of  the 
securities  for  money  which,  by  the  law  merchant,  are  capable  of 
being  transferred  by  indorsement  or  delivery — indeed,  not  being  a 
security  for  money  at  all,  but  only  for  the  future  delivery  of  a 
bond — the  right  of  the  true  owner  could  not  be  divested  by  the 
fraudulent  transfer  of  the  chattel  by  a  person  who  had  no  title  as 
against  the  owner. 

Strenuous  efforts  were  made  by  Mr.  Benjamin  in  his  able 
argument  on  behalf  of  the  plaintiff  to  distinguish  the  present  case 
from  Gorgier  v.  Mieville.,  3  B.  &  C.  45.  He  insisted,  first,  that 
although  it  must  be  admitted  that,  if  a  bond  had  been  given  in  lieu 
of  this  scrip,  the  bond  would  have  been  a  negotiable  instrument, 
as  the  case  would  then  have  come  within  Gorgier  v.  Mieville,  3 
B.  &  C.  45,  here  there  was  no  engagement  on  the  part  of  the  for- 
eign government.  The  only  party  signing  the  scrip,  or  who  could 
be  held  bound  by  it,  were  the  Messrs.  de  Rothschild ;  and  the 
persons  advancing  their  money,  and  taking  the  scrip,  could  look 
only  to  them.  Secondly,  that  even  assuming  that  the  issuing  01 
the  scrip  was  to  be  taken  to  be  the  act  of  the  foreign  government, 
yet  that  as  it  had  been  issued  in  London,  and  the  parties  taking  it 
had  advanced  their  money  in  this  country,  the  contract  must  be 
taken  to  have  been  made  here,  and  must  be  subject  to  the  law  of 
England.  That  when  a  foreign  sovereign  negotiated  a  loan  in 
this  country,  through  his  agent,  it  was  in  effect  the  same  thing  as 
though  such  sovereign  had  himself  come  to  this  country  and 
entered  into  the  contract  in  person.     That,  consequently,  in  either 


20  History  of  the  Law  Merchant 

view,  the  contract  arising  on  the  scrip  must  be  taken  to  have  been 
made  here,  and  must  be  dealt  with  according  to  English  law. 
That  this  being  so,  the  case  of  Crouch  v.  The  Credit  Fonder  of 
England,  Law  Rep.  8  Q.  B.  374,  was  an  authority  which  estab- 
lished that  it  was  not  competent  to  anyone,  by  the  law  of  England, 
to  give  to  a  security,  not  negotiable  by  the  law  merchant,  the 
character  of  negotiability,  by  making  it  payable  to  bearer,  even 
though  such  security  were  a  security  for  money.  That,  a  fortiori, 
this  scrip,  not  being  a  promise  to  pay  money,  but  only  to  give  a 
bond  when  all  the  instalments  should  have  been  paid  up,  could 
not  have  the  character  of  negotiability  given  to  it  by  being  made 
payable  to  bearer.  That  choses  in  action  not  being  assignable 
by  the  general  common  law,  it  was  only  by  the  law  merchant, 
which  was  recognized  by  the  common  law  and  adopted  by  it,  that 
a  particular  class  of  securities  for  money  could  be  made  negotiable, 
either  by  indorsement,  or  by  being  made  payable  to  bearer ;  and 
that  this  class  of  securities  was  confined  to  bills  of  exchange, 
promissory  notes,  and  drafts  payable  to  bearer.  That  this  scrip 
did  not  coincide  with  either  of  the  securities  for  money  to  which 
by  the  law  merchant,  the  quality  of  being  so  rendered  negotiable 
had  been  conceded;  the  more  so  as  in  fact  it  was  not  a  security 
for  money  at  all,  but  only  an  agreement  to  give  such  a  security 
in  the  shape  of  a  bond.  That  the  bonds  of  foreign  governments 
had  been  held  to  be  negotiable  by  the  Courts  of  this  country,  not 
because  they  were  negotiable  by  the  law  of  the  country  in  which 
they  were  made,  but  because  they  were  in  substance  and  effect 
promissory  notes. 

We  entirely  dissent  from  the  contention  that  the  contract  in 
question  is  one  in  which  the  Messrs.  de  Rothschild  can  be  looked 
upon  as  principals.  And  though  our  decision  on  that  head  may 
not  be  essential  to  the  conclusion  we  have  arrived  at  on  the  case,, 
we  think  it  desirable  in  a  matter  in  which  the  public  are  so  much 
interested  that  our  view  should  be  made  known.  It  is  plain  on 
the  face  of  the  document  that  the  Messrs.  de  Rothschild  only 
profess  to  be  acting  as  the  agents  of  the  foreign  governments. 
The  law  on  this  subject  is  correctly  laid  down  in  Story  on  Agency, 
in  the  chapter  on  the  Liabilities  of  Public  Agents,  s.  302.  Col- 
lecting the  English  and  American  authorities  in  a  note,  the  learned 
jurist  writes  as  follows:  'Tn  the  ordinary  course  of  things,  an 
agent,  contracting  on  behalf  of  the  government,  or  of  the  public, 
is  not  personally  bound  by  such  a  contract,  even  though  he  would 
be  by  the  terms  of  the  contract,  if  it  were  an  agency  of  a  private 
nature.     The  reason  of  the  distinction  is,  that  it  is  not  to  be  pre- 


Goodwin  v.  Robarts  .  21 

sumed,  either  that  the  public  agent  means  to  bind  himself  per- 
sonally in  acting  as  a  functionary  of  the  government,  or,  that  the 
party  dealing  with  him  in  his  public  character,  means  to  rely  on 
his  individual  responsibility.  On  the  contrary,  the  natural  pre- 
sumption in  such  cases  is  that  the  contract  was  made  upon  the 
credit  and  responsibility  of  the  Government  itself,  as  possessing 
an  entire  ability  to  fulfil  all  its  just  contracts,  far  beyond  that  of 
any  private  man,  and  that  it  is  ready  to  fulfil  them  not  only  with 
good  faith,  but  with  punctilious  promptitude,  and  in  a  spirit  of 
liberal  courtesy.  Great  public  inconvenience  would  result  from  a 
different  doctrine,  considering  the  various  public  functionaries 
which  the  government  must  employ  in  order  to  transact  its  ordi- 
nary business  and  operations ;  and  many  persons  would  be 
deterred  from  accepting  of  many  offices  of  trust  under  the  govern- 
ment, if  they  were  held  personally  liable  upon  all  their  official 
contracts.  This  principle  not  only  applies  to  simple  contracts,  both 
parol  and  written,  but  also  to  instruments  under  seal,  which  are 
executed  by  agents  of  the  government  in  their  own  name,  and 
purport  to  be  made  by  them  on  behalf  of  the  government ;  for  the 
like  presumption  prevails  in  such  cases,  that  the  parties  contract 
not  personally,  but  merely  officially,  within  the  sphere  of  their 
appropriate  duties." 

Chancellor  Kent  lays  down  the  law  to  the  like  effect  (2nd 
Commentaries,  p.  810,  7th  ed.),  "There  is  a  distinction  in  the 
books  between  public  and  private  agents  on  the  point  of  personal 
responsibility.  If  an  agent,  on  behalf  of  government,  makes  a 
contract  and  describes  himself  as  such,  he  is  not  personally  bound, 
even  though  the  terms  of  the  contract  be  such  as  might,  in  a  case 
of  a  private  nature,  involve  him  in  a  personal  obligation.  The 
reason  of  the  distinction  is,  that  it  is  not  to  be  presumed  that  a 
public  agent  meant  to  bind  himself  individually  for  the  govern- 
ment, and  the  party  who  deals  with  him  in  that  character  is  justly 
supposed  to  rely  upon  the  good  faith  and  undoubted  ability  of  the 
government.  But  the  agent  in  behalf  of  the  public  may  still  bind 
himself  by  an  express  engagement,  and  the  distinction  terminates 
in  a  question  of  evidence.  The  inquiry  in  all  the  cases  is,  to 
whom  was  the  credit,  in  the  contemplation  of  the  parties,  intended 
to  be  given.  This  is  the  general  inference  to  be  drawn  from  all 
the  cases,  and  it  is  expressly  declared  in  some  of  them." 

It  is  true  these  authors  are  speaking  of  persons  acting  as 
agents  for  their  own  governments ;  but  the  reasoning  applies 
equally  to  persons  acting  as  agents  for  a  foreign  government,  and 
the  same  presumption  must  arise  in  both  cases.     Nor  can  we  sup- 


22  History  of  the  Law  Merchant 

pose  that  the  persons  taking  this  scrip  did  so  otherwise  than 
through  their  faith  in  the  honour  of  the  foreign  government,  just 
as  they  would  have  had  to  trust  to  it  on  their  afterwards  receiving 
the  bonds  in  lieu  of  the  scrip.  They  would  then  be  equally  with- 
out legal  redress  against  the  foreign  government  and  must  have 
trusted  to  its  honour  in  the  fulfilment  of  its  engagements. 

We  think  it  unnecessary  to  enter  upon  the  question  whether 
the  contract  thus  entered  into  is  to  be  considered  as  a  Russian  or 
an  English  contract,  as  we  agree  in  thinking^ that  its  negotiable 
character,  if  it  exists  at  all,  must  depend^on  what  might  be  its 
negotiability  by  the  foreign  law,  but  on  now  far  the  universal 
usage  of  the  monetary  world  has  given  it  that  character  here. 
"The  question,"  says  Tindal,  C.J.,  in  Lang  v.  Smyth,  7  Bing.  284, 
at  p.  293,  "is  not  so  much  what  is  the  usage  in  the  country  whence 
the  instrument  comes,  as  in  the  country  where  it  passed.  The 
substance  of  Mr.  Benjamin's  argument  is,  that,  because  the  scrip 
does  not  correspond  with  any  of  the  forms  of  the  securities  for 
money  which  have  been  hitherto  held  to  be  nogitiable  by  the  law 
merchant,  and  does  not  contain  a  direct  promise  to  pay  money, 
but  only  a  promise  to  give  security  for  money,  it  is  not  a  security 
to  which,  by  the  law  merchant,  the  character  of  negotiability  can 
attach. 

Having  given  the  fullest  consideration  to  this  argument,  we 
are  of  opinion  that  it  cannot  prevail.  It  is  founded  on  the  view 
that  the  law  merchant  thus  referred  to  is  fixed  and  stereotyped, 
and  incapable  of  being  expanded  and  enlarged  so  as  to  meet  the 
wants  and  requirements  of  trade  in  the  varying  circumstances  of 
commerce.  It  is  true  that  the  law  merchant  is  sometimes  spoken 
of  as  a  fixed  body  of  law,  forming  part  of  the  common  law,  and  as 
it  were  coeval  with  it.  But  as  a  matter  of  legal  history,  this  view 
is  altogether  incorrect.  The  law  merchant  thus  spoken  of  with 
reference  to  bills  of  exchange  and  other  negotiable  securities, 
though  forming  part  of  the  general  body  of  the  lex  mercatoria,  is 
of  comparatively  recent  origin.  It  is  neither  more  nor  less  than 
the  usages  of  merchants  and  traders  in  the  different  departments 
of  trade,  ratified  by  the  decisions  of  Courts  of  law,  which,  upon 
such  usages  being  proved  before  them,  have  adopted  them  as 
settled  law  with  a  view  to  the  interests  of  trade  and  the  public 
convenience,  the  Court  proceeding  herein  on  the  well-known  prin- 
ciple of  law  that,  with  reference  to  transactions  in  the  different 
departments  of  trade,  Courts  of  law,  in  giving  effect  to  the  con- 
tracts and  dealings  of  the  parties,  will  assume  that  the  latter  have 
dealt  with  one  another  on  the  footing  of  any  custom  or  usage 


Goodwin  v.  Robarts  23 

prevailing  generally  in  the  particular  department.  By  this  process, 
what  before  was  usage  only,  unsanctioned  by  legal  decision,  has 
become  engrafted  upon,  or  incorporated  into,  the  common  law, 
and  may  thus  be  said  to  form  a  part  of  it.  "When  a  general  usage 
has  been  judicially  ascertained  and  established,"  says  Lord  Camp- 
bell, in  Brandao  v.  Barnctt,  12  CI.  &  F.,  at  p.  805,  "it  becomes  a 
part  of  the  law  merchant,  which  Courts  of  justice  are  bound  to 
know  and  recognise." 

Bills  of  exchange  are  known  to  be  of  comparatively  modern 
origin,  having  been  first  brought  into  use,  so  far  as  is  at  present 
known,  by  the  Florentines  in  the  twelfth,  and  by  the  Venetians 
about  the  thirteenth,  century.  The  use  of  them  gradually  found 
its  way  into  France,  and,  still  later  and  but  slowly,  into  England. 
We  find  it  stated  in  a  law  tract,  by  Mr.  Macleod,  entitled  "Speci- 
men of  a  Digest  of  the  Law  of  Bills  of  Exchange,"  printed,  we 
believe,  as  a  report  to  the  government,  but  which,  from  its 
research  and  ability,  deserves  to  be  produced  in  a  form  calculated 
to  insure  a  wider  circulation,  that  Richard  Malynes,  a  London 
merchant,  who  published  a  work  called  the  Lex  Mercatoria,  in 
1622,  and  who  gives  a  full  account  of  these  bills  as  used  by  the 
merchants  of  Amsterdam,  Hamburg,  and  other  places,  expressly 
states  that  such  bills  were  not  used  in  England.  There  is  reason 
to  think,  however,  that  this  is  a  mistake.  Mr.  Macleod  shows  that 
promissory  notes,  payable  to  bearer,  or  to  a  man  and  his  assigns, 
were  known  in  the  time  of  Edward  IV.  Indeed,  as  early  as  the 
statute  of  3  Rich.  2,  c.  3,  bills  of  exchange  are  referred  to  as  a 
means  of  conveying  money  out  of  the  realm,  though  not  as  a  pro- 
cess in  use  among  English  merchants.  But  the  fact  that  a 
London  merchant  writing  expressly  on  the  law  merchant  was 
unaware  of  the  use  of  bills  of  exchange  in  this  country,  shews 
that  that  use  at  the  time  he  wrote  must  have  been  limited. 
According  to  Professor  Story,  who  herein  is,  no  doubt,  perfectly 
right,  "the  introduction  and  use  of  bills  of  exchange  in  England," 
as  indeed  it  was  everywhere  else,  "seems  to  have  been  founded 
on  the  mere  practice  of  merchants,  and  gradually  to  have  acquired 
the  force  of  a  custom."  With  the  development  of  English  com- 
merce the  use  of  these  most  convenient  instruments  of  commer- 
cial traffic  would  of  course  increase,  yet,  according  to  Mr.  Chitty, 
the  earliest  case  on  the  subject  to  be  found  in  the  English  books 
is  that  of  Martin  v.  Boure,  Cro.  Jac.  6,  in  the  first  James  I.  Up 
to  this  time  the  practice  of  making  these  bills  negotiable  by 
indorsement  had  been  unknown,  and  the  earlier  bills  are  found 
to  be  made  payable  to  a  man  and  his  assigns,  though  in  some 


24  History  of  the  Law  Merchant 

instances  to  bearer.  But  about  this  period,  that  is  to  say,  at  the 
close  of  the  sixteenth  or  the  commencement  of  the  seventeenth 
century,  the  practice  of  making  bills  payable  to  order,  and  trans- 
ferring them  by  indorsement,  took  its  rise.  Hartmann,  in  a  very 
learned  work  on  Bills  of  Exchange,  recently  published  in  Ger- 
many, states  that  the  first  known  mention  of  the  indorsement  of 
these  instruments  occurs  in  the  Neapolitan  Pragmatica  of  1607. 
Savary,  cited  by  Mons.  Nouguier,  in  his  work  "Des  lettres  de 
change,"  had  assigned  to  it  a  later  date,  namely  1620.  From  its 
obvious  convenience  this  practice  speedily  came  into  general  use, 
and,  as  part  of  the  general  custom  of  merchants,  received  the 
sanction  of  our  Courts.  At  first  the  use  of  bills  of  exchange 
seems  to  have  been  confined  to  foreign  bills  between  English  and 
foreign  merchants.  It  was  afterwards  extended  to  domestic  bills 
between  traders,  and  finally  to  bills  of  all  persons,  whether  traders 
or  not:    see  Chitty  on  Bills,  8th  ed.,  p.  13. 

In  the  meantime,  promissory  notes  had  also  come  into  use, 
differing  herein  from  bills  of  exchange  that  they  were  not  drawn 
upon  a  third  party,  but  contained  a  simple  promise  to  pay  by  the 
maker,'  resting,  therefore,  upon  the  security  of  the  maker  alone. 
They  were  at  first  made  payable  to  bearer,  but  when  the  practice 
of  making  bills  of  exchange  payable  to  order,  and  making  them 
transferable  by  indorsement,  had  once  become  established,  the 
practice  of  making  promissory  notes  payable  to  order,  and  of 
transferring  them  by  indorsement,  as  had  been  done  with  bills  of 
exchange,  speedily  prevailed.  And  for  some  time  the  courts  of 
law  acted  upon  the  usage  with  reference  to  promissory  notes,  as 
well  as  with  reference  to  bills  of  exchange. 

In  1680,  in  the  case  of  Sheldon  v.  Hentley,  2  Show.  160,  an 
action  was  brought  on  a  note  under  seal  by  which  the  defendant 
promised  to  pay  to  bearer  100/.,  and  it  was  objected  that  the  note 
was  void  because  not  made  payable  to  a  specific  person.  But  it 
was  said  by  the  Court,  "Traditio  facit  chartam  loqui,  and  by  the 
delivery  he  (the  maker)  expounds  the  person  before  meant;  as 
when  a  merchant  promises  to  pay  to  the  bearer  of  the  note,  any- 
one that  brings  the  note  shall  be  paid."  Jones,  J.,  said  that  "it 
was  the  custom  of  merchants  that  made  that  good."  In  Brom- 
wich  v.  Lloyd,  2  Lutw.  1582,  the  plaintiff  declared  upon  the 
custom  of  merchants  in  London,  on  a  note  for  money  payable  on 
demand,  and  recovered;  and  Treby,  C.J.,  said  that  "bills  of 
exchange  were  originally  between  foreigners  and  merchants  trad- 
ing with  the  English ;  afterwards,  when  such  bills  came  to  be 
more  frequent,  then  they  were  allowed  between  merchants  trading 


Goodwin  v.   Robarts  25 

in  England,  and  afterwards  between  any  traders  whatsoever,  and 
now  between  any  persons,  whether  trading  or  not ;  and,  therefore, 
the  plaintiff  need  not  allege  any  custom,  for  now  those  bills  were 
of  that  general  use  that  upon  an  indebitatus  assumpsit  they  may 
be  given  in  evidence  upon  the  trial."  To  which  Powell,  J.,  added, 
"On  indebitatus  assumpsit  for  money  received  to  the  use  of  the 
plaintiff  the  bill  may  be  left  to  the  jury  to  determine  whether  it 
was  given  for  value  received." 

In  Williams  v.  Williams,  Carth.  269,  where  the  plaintiff 
brought  his  action  as  indorsee  against  the  payee  and  indorser  of 
a  promissory  note,  declaring  on  the  custom  of  merchants,  it  was 
objected  on  error,  that  the  note  having  been  made  in  London,  the 
custom,  if  any,  should  have  been  laid  as  the  custom  of  London. 
It  was  answered  "that  this  custom  of  merchants  was  part  of  the 
common  law,  and  the  Court  would  take  notice  of  it  ex  officio; 
and,  therefore,  it  was  needless  to  set  forth  the  custom  specially 
in  the  declaration,  but  it  was  sufficient  to  say  that  such  a  person 
secundum  usum  et  consuetudinem  mercatorum,  drew  the  bill." 
And  the  plaintiff  had  judgment. 

Thus  far  the  practice  of  merchants,  traders,  and  others,  of 
treating  promissory  notes,  whether  payable  to  order  or  bearer,  on 
the  same  footing  as  bills  of  exchange  had  received  the  sanction  of 
the  Courts,  but  Holt  having  become  Chief  Justice,  a  somewhat 
unseemly  conflict  arose  between  him  and  the  merchants  as  to  the 
negotiability  of  promissory  notes,  whether  payable  to  order  or  to 
bearer,  the  Chief  Justice  taking  what  must  now  be  admitted  to 
have  been  a  narrow-minded  view  of  the  matter,  setting  his  face 
strongly  against  the  negotiability  of  these  instruments,  contrary, 
as  we  are  told  by  authority,  to  the  opinion  of  Westminster  Hall, 
and  in  a  series  of  successive  cases,  persisting  in  holding  them  not 
to  be  negotiable  by  indorsement  or  delivery.  The  inconvenience 
to  trade  arising  therefrom  led  to  the  passing  of  the  statute  of 
3  &  4  Anne,  c.  9,  whereby  promissory  notes  were  made  capable  of 
being  assigned  by  indorsement,  or  made  payable  to  bearer,  and 
such  assignment  was  thus  rendered  valid  beyond  dispute  or 
difficulty. 

It  is  obvious  from  the  preamble  of  the  statute,  which  merely 
recites  that  "it  had  been  held  that  such  notes  were  not  within  the 
custom  of  Merchants,"  that  these  decisions  were  not  acceptable  to 
the  profession  or  the  country.  Nor  can  there  be  much  doubt  that 
by  the  usage  prevalent  amongst  merchants,  these  notes  had  been 
treated  as  securities  negotiable  by  the  customary  method  of  assign- 
ment as  much  as  bills  of  exchange  properly  so  called.     The  Stat- 


26  History  of  the  Law  Merchant 

ute  of  Anne  may  indeed,  practically  speaking,  be  looked  upon 
as  a  declaratory  statute,  confirming  the  decisions  prior  to  the 
time  of  Lord  Holt. 

We  now  arrive  at  an  epoch  when  a  new  form  of  security  for 
money,  namely,  goldsmiths'  or  bankers'  notes,  came  into  general 
use.  Holding  them  to  be  part  of  the  currency  of  the  country,  as 
cash,  Lord  Mansfield  and  the  Court  of  King's  Bench  had  no  diffi- 
culty in  holding,  in  Miller  v.  Race,  i  Burr.  452,  that  the  property 
in  such  a  note  passes,  like  that  in  cash,  by  delivery,  and  that  a 
party  taking  it  bona  fide,  and  for  value,  is  consequently  entitled 
to  hold  it  against  a  former  owner  from  whom  it  has  been  stolen. 

In  like  manner  it  was  held,  in  Collins  v.  Martin,  I  B.  &  P. 
648,  that  where  bills  indorsed  in  blank  had  been  deposited  with  a 
banker,  to  be  received  when  due,  and  the  latter  had  pledged  them 
with  another  banker  as  security  for  a  loan,  the  owner  could  not 
bring  trover  to  recover  them  from  the  holder. 

Both  these  decisions  of  course  proceeded  on  the  ground  that 
the  property  in  the  bank-note  payable  to  bearer  passed  by  deliv- 
ery, that  in  the  bill  of  exchange  by  indorsement  in  blank,  provided 
the  acquisition  had  been  made  bona  fide. 

A  similar  question  arose  in  Wookey  v.  Pole,  4  B.  &  Aid.  1, 
in  respect  of  an  exchequer  bill,  notoriously  a  security  of  modern 
growth.  These  securities  being  made  in  favour  of  blank  or  order, 
contained  this  clause,  "If  the  blank  is  not  filled  up  the  bill  will  be 
paid  to  bearer."  Such  an  exchequer  bill,  having  been  placed, 
without  the  blank  being  filled  up,  in  the  hands  of  the  plaintiffs' 
agent,  had  been  depositd  by  him  with  the  defendants,  on  a  bona 
fide  advance  of  money.  It  was  held  by  three  judges  of  the 
Queen's  Bench,  Bayley,  J.,  dissentiente,  that  an  exchequer  bill 
was  a  negotiable  security,  and  judgment  was  therefore  given  for 
the  defendants.  The  judgment  of  Holroyd,  J.,  goes  fully  into  the 
subject,  pointing  out  the  distinction  between  money  and  instru- 
ments which  are  the  representatives  of  money,  and  other  forms 
of  property.  "The  Courts,"  he  says,  "have  considered  these 
instruments,  either  promises  or  orders  for  the  payment  of  money, 
or  instruments  entitling  the  holder  to  a  sum  of  money,  as  being 
appendages  to  money,  and  following  the  nature  of  their  principal." 
After  referring  to  the  authorities,  he  proceeds:  "These  author- 
ities shew,  that  not  only  money  itself  may  pass,  and  the  right  to 
it  may  arise,  by  currency  alone,  but  further,  that  these  mercantile 
instruments,  which  entitle  the  bearer  of  them  to  money,  may  also 
pass,  and  the  right  to  them  may  arise,  in  like  manner,  by  currency 
or  delivery.     These  decisions  proceed  upon  the  nature  of  the 


Goodwin  v.  Robarts  27 

property  (i.  e.,  money),  to  which  such  instruments  give  the  right, 
and  which  is  in  itself  current,  and  the  effect  of  the  instruments, 
which  either  give  to  their  holders,  merely  as  such,  a  right  to 
receive  the  money,  or  specify  them  as  the  persons  entitled  to 
receive  it." 

Another  very  remarkable  instance  of  the  efficacy  of  usage  is 
to  be  found  in  much  more  recent  times.  It  is  notorious  that, 
with  the  exception  of  the  Bank  of  England,  the  system  of  banking 
has  recently  undergone  an  entire  change.  Instead  of  the  banker 
issuing  his  own  notes  in  return  for  the  money  of  the  customer 
deposited  with  him,  he  gives  credit  in  account  to  the  depositor,  and 
leaves  it  to  the  latter  to  draw  upon  him,  to  bearer  or  order,  by 
what  is  now  called  a  cheque.  Upon  this  state  of  things  the  gen- 
eral course  of  dealing  between  bankers  and  their  customers  has 
attached  incidents  previously  unknown,  and  these  by  the  decisions 
of  the  Courts  have  become  fixed  law.  Thus,  while  an  ordinary 
drawee,  although  in  possession  of  funds  of  the  drawer,  is  not 
bound  to  accept,  unless  by  his  own  agreement  or  consent,  the 
banker,  if  he  has  funds,  is  bound  to  pay  on  presentation  of  a 
cheque  on  demand.  Even  admission  of  funds  is  not  sufficient  to 
bind  an  ordinary  drawee,  while  it  is  sufficient  with  a  banker ;  and 
money  deposited  with  a  banker  is  not  only  money  lent,  but  the 
banker  is  bound  to  repay  it  when  called  for  by  the  draft  of  the 
customer  (see  Pott  v.  Clegg,  16  M.  &  W.  321).  Besides  this,  a 
custom  has  grown  up  among  bankers  themselves  of  marking 
cheques  as  good  for  the  purposes  of  clearance,  by  which  they 
become  bound  to  one  another. 

Though  not  immediately  to  the  present  purpose,  bills  of  lad- 
ing may  also  be  referred  to  as  an  instance  of  how  general  mer- 
cantile usage  may  give  effect  to  a  writing  which  without  it  would 
not  have  had  that  effect  at  common  law.  It  is  from  mercantile 
usage,  as  proved  in  evidence,  and  ratified  by  judicial  decision  in 
the  great  case  of  Lickbarrow  v.  Mason,  2  T.  R.  63,  that  the  effi- 
cacy of  bills  of  lading  to  pass  the  property  in  goods  is  derived. 

It  thus  appears  that  all  these  instruments  which  are  said  to 
have  derived  their  negotiability  from  the  law  merchant  had  their 
origin,  and  that  at  no  very  remote  period,  in  mercantile  usage, 
and  were  adopted  into  the  law  by  our  Courts  as  being  in  confor- 
mity with  the  usages  of  trade ;  of  which,  if  it  were  needed,  a 
further  confirmation  might  be  found  in  the  fact  that,  according 
to  the  old  form  of  declaring  on  bills  of  exchange,  the  declaration 
always  was  founded  on  the  custom  of  merchants. 

Usage,  adopted  by  the  Courts,  having  been  thus  the  origin 


28  History  of  the  Law  Merchant 

of  the  whole  of  the  so-called  law  merchant  as  to  negotiable  secur- 
ities, what  is  there  to  prevent  our  acting  upon  the  principle  acted 
upon  by  our  predecessors,  and  followed  in  the  precedents  they 
have  left  to  us?  Why  is  it  to  be  said  that  a  new  usage  which  has 
sprung  up  under  altered  circumstances,  is  to  be  less  admissible 
than  the  usages  of  past  times?  Why  is  the  door  to  be  now  shut 
to  the  admission  and  adoption  of  usage  in  a  matter  altogether  of 
cognate  character,  as  though  the  law  had  been  finally  stereotyped 
and  settled  by  some  positive  and  peremptory  enactment?  It  is 
true  that  this  scrip  purports,  on  the  face  of  it,  to  be  a  security  not 
for  money,  but  for  the  delivery  of  a  bond ;  nevertheless  we  think 
that  substantially  and  in  effect  it  is  a  security  for  money,  which, 
till  the  bond  shall  be  delivered,  stands  in  the  place  of  that  docu- 
ment, which,  when  delivered,  will  be  beyond  doubt  the  represen- 
tative of  the  sum  it  is  intended  to  secure.  Suppose  the  possible 
case  that  the  borrowing  government,  after  receiving  one  or  two 
instalments,  were  to  determine  to  proceed  no  further  with  its 
loan,  and  to  pay  back  to  the  lenders  the  amount  they  had  already 
advanced;  the  scrip  with  its  receipts  would  be  the  security  to  the 
holders  for  the  amount.  The  usage  of  the  money  market  has 
solved  the  question  whether  scrip  should  be  considered  security 
for,  and  the  representative  of,  money,  by  treating  it  as  such. 

The  universality  of  a  usage  voluntarily  adopted  between  buy- 
ers and  sellers  is  conclusive  proof  of  its  being  in  accordance  with 
public  convenience;  and  there  can  be  no  doubt  that  by  holding 
this  species  of  security  to  be  incapable  of  being  transferred  by 
delivery,  and  as  requiring  some  more  cumbrous  method  of  assign- 
ment, we  should  materially  hamper  the  transactions  of  the  money 
market  with  respect  to  it,  and  cause  great  public  inconvenience. 
No  doubt  there  is  an  evil  arising  from  the  facility  of  transfer  by 
delivery,  namely,  that  it  occasionally  gives  rise  to  the  theft  or 
misappropriation  of  the  security,  to  the  loss  of  the  true  owner. 
But  this  is  an  evil  common  to  the  whole  body  of  negotiable  securi- 
ties. It  is  one  which  may  be  in  a  great  degree  prevented  by  pru- 
dence and  care.  It  is  one  which  is  counterbalanced  by  the  general 
convenience  arising  from  facility  of  transfer,  or  the  usage  would 
never  have  become  general  to  make  scrip  available  to  bearer,  and 
to  treat  it  as  transferable  by  delivery.  It  is  obvious  that  no  injus- 
tice is  done  to  one  who  has  been  fraudulently  dispossessed  of 
scrip  through  his  own  misplaced  confidence,  in  holding  that  the 
property  in  it  has  passed  to  a  borfa  fide  holder  for  value,  seeing 
that  he  himself  must  have  known  that  it  purported  on  the  face 
of  it  to  be  available  to  bearer,  and  must  be  presumed  to  have  been 


Goodwin  v.   Robarts  29 

aware  of  the  usage  prevalent  with  respect  to  it  in  the  market  in 
which  he  purchased  it. 

Lastly,  it  is  to  be  observed  that  the  tendency  of  the  Courts, 
except  only  in  the  time  of  Lord  Holt,  has  been  to  give  effect  to 
mercantile  usage  in  respect  to  securities  for  money,  and  that 
where  legal  difficulties  have  arisen,  the  legislature  has  been  prompt 
to  give  the  necessary  remedy,  as  in  the  case  of  promissory  notes 
and  of  the  East  India  bonds. 

The  authorities  relied  on  on  the  part  of  the  plaintiff  do  not 
appear  to  us  materially  to  conflict  with  this  view.  In  Glyn  v. 
Baker,  13  East.  509,  which  was  an  action  to  recover  India  Bonds, 
and  in  which  it  w-as  held  that  such  bonds  did  not  pass  by  delivery, 
the  bonds  were  not  made  payable  to  bearer,  and  there  was  a  total 
absence  of  proof  that  they  passed  by  delivery,  though  it  was 
asserted  by  counsel  in  argument  that  when  these  bonds,  which  in 
the  first  instance  were  made  payable  to  the  treasurer  of  the  com- 
pany, had  been  indorsed  by  him,  they  were  afterwards  negotiable 
and  passed  by  delivery  from  one  to  another.  The  inconvenience 
which  would  have  arisen  from  this  decision  was  remedied  by  the 
immediate  passing  of  51  Geo.  3,  c.  64,  by  which  bonds  of  the 
East  India  Company  were  made  transferable  by  delivery. 

The  case  of  Partridge  v.  Governor  and  Company  of  the  Bank 
of  England,  9  Q.  B.  396;  15  L.  J.  Q.  B.  395,  and  which,  amongst 
other  things,  turned  on  the  negotiability  of  dividend  warrants  of 
the  Bank  of  England,  is  not,  so  far  as  that  expression  is  concerned, 
altogether  satisfactory,  as  the  decision  turned  also  upon  other 
points.  The  bank  were  in  the  habit  of  paying  dividends  to  those 
entitled  to  them  by  warrants,  and  it  was  pleaded  and  proved  that 
by  a  usage  of  sixty  years  standing  of  the  bankers  and  merchants 
of  London,  these  warrants,  which  are  not  made  to  bearer,  were 
nevertheless  negotiable  so  soon  as  the  party  to  whom  they  were 
made  payable  had  annexed  to  them  the  receipt  which  the  bank 
required  before  payment  would  be  made.  Such  a  warrant  had 
been  obtained  by  an  agent  of  the  plaintiff  authorized  to  receive 
his  dividends,  and  had  been  made  over  to  the  defendants  for 
good  consideration,  in  fraud  of  the  plaintiff,  so  far  as  the  agent 
was  concerned,  but  without  knowledge  of  such  fraud  on  the  part 
of  the  defendants.  The  warrant  had  been  delivered  by  the 
defendants  to  the  bank,  with  whom  they  had  an  account,  to  be 
carried  to  their  credit,  and  the  amount  had  been  entered  to  their 
credit  in  the  cash  book  of  the  defendants,  but  had  not  been  carried 
to  their  drawing  account.  The  Court  of  Queen's  Bench  held 
this  proof  of  the  custom  to  be  a  good  defence.     The  Court  of 


30  History  of  the  Law  Merchant 

Exchequer  Chamber  reversed  their  judgment,  on  the  ground, 
among  others,  that  the  custom  relied  on  was  "rather  a  practice 
of  trade  than  a  custom  properly  so-called,  and  that  such  a  practice 
could  not  alter  the  law  according  to  which  such  an  instrument  con- 
ferred no  right  of  action  on  an  assignee."  We  quite  feel  the  force 
of  this  distinction,  though  it  is  not  quite  so  clear  in  what  sense  it 
was  here  intended  to  be  applied.  Possibly  what  was  meant  was, 
that  the  custom  applied  to  the  warrants  of  a  particular  company, 
and  therefore  could  not  form  the  subject  of  any  general  mercan- 
tile usage. 

In  Dixon  v.  Bovill,  3  Macq.  1,  where  the  note  was  "to  deliver 
so  much  iron  when  required  to  the  party  lodging  this  document 
with  me,"  there  was  neither  a  promise  to  bearer,  nor  was  there 
any  proof  whatever  of  any  usage  whereby  such  notes  were  dealt 
with  as  negotiable.  The  case  has  therefore,  with  reference  to  its 
facts,  no  bearing  on  the  present. 

In  Crouch  v.  The  Credit  Fonder  of  England,  Law  Rep.  8  Q. 
B.  374,  the  defendants,  a  limited  company,  had  issued  bonds  pay- 
able to  bearer,  "subject  to  the  conditions  indorsed  on  this  deben- 
ture;" and  by  the  conditions  so  indorsed  the  bonds  were  to  be 
paid  off  by  a  certain  number  being  drawn  at  stated  periods;  in 
which  respect,  it  may  be  observed,  they  bore  a  close  resemblance 
to  the  bonds  of  foreign  governments  when  loans  are  thus  raised 
by  way  of  bond.  A  bond  thus  made  having  been  stolen  from  the 
lawful  owner,  and  having  been  purchased  bona  fide  by  the 
plaintiff  from  the  thief,  was  drawn  for  payment.  The  plaintiff 
claimed  payment,  which  was  refused,  whereupon  the  action  was 
brought.  It  was  there  held  by  three  judges  of  the  Court  of 
Queen's  Bench  that  the  plaintiff  could  not  recover ;  first,  because, 
even  assuming  that  a  promise  to  pay  under  seal  could  be  con- 
sidered a  promissory  note,  here  the  conditions  annexed  to  the 
promise  took  away  that  character  from  the  instrument.  No  evi- 
dence had  been  offered  at  the  trial  as  to  whether  these  or  similar 
documents  were  in  practice  treated  as  negotiable,  nor  was  any 
expressed  admission  made  as  to  the  point ;  but  it  was  assumed, 
from  the  report  of  the  learned  judge  before  whom  the  cause  was 
tried,  that  this  had  been  tacitly  admitted.  But  it  was  said  that 
these  instruments  having  been  only  of  recent  introduction,  it  fol- 
lowed that  such  custom,  to  whatever  extent  it  had  gone,  must 
also  have  been  quite  recent.  Under  these  circumstances  the  Court 
held  that,  while  it  was  incompetent  to  the  defendants,  as  an  indi- 
vidual company,  to  give  to  that  which  was  not  a  negotiable  instru- 
ment at  law  the  character  of  negotiability  by  making  it  payable  to 


Goodwin  v.   Robarts  31 

bearer,  the  custom  could  not  have  that  effect,  because,  being 
recent,  it  formed  no  part  of  the  ancient  law  merchant.  For  the 
reasons  we  have  already  given  we  cannot  concur  in  thinking  the 
latter  ground  conclusive.  While  we  quite  agree  that  the  greater 
or  less  time  during  which  a  custom  has  existed  may  be  material 
in  determining  how  far  it  has  generally  prevailed,  we  cannot  think 
that,  if  a  usage  is  once  shewn  to  be  universal,  it  is  the  less  entitled 
to  prevail  because  it  may  not  have  formed  part  of  the  law  mer- 
chant as  previously  recognised  and  adopted  by  the  Courts.  It  is 
obvious  that  such  reasoning  would  have  been  fatal  to  the  negotia- 
bility of  foreign  bonds,  which  are  of  comparatively  modern  origin, 
and  yet,  according  to  Gorgier  v.  Mieville,  3  B.  &  C.  45,  are  to  be 
treated  as  negotiable.  We  think  the  judgment  in  Crouch  v.  The 
Credit  Fonder,  Law  Rep.  8  Q.  B.  374,  may  well  be  supported  on 
the  ground  that  in  that  case  there  was  substantially  no  proof 
whatever  of  general  usage.  We  cannot  concur  in  thinking  that  if 
proof  of  general  usage  had  been  established,  it  would  have  been 
a  sufficient  ground  for  refusing  to  give  effect  to  it  that  it  did  not 
form  part  of  what  is  called  "the  ancient  law  merchant." 

In  addition  to  the  cases  we  have  already  referred  to,  in  which 
usage  has  been  relied  on  as  making  mercantile  instruments  nego- 
tiable, the  case  of  Lang  v.  Smyth,  7  Bing.  284,  was  cited  as  shew- 
ing that  the  question  with  reference  to  instruments  of  this  descrip- 
tion turns  upon  how  far  the  particular  instrument  has  by  usage 
acquired  the  quality  of  negotiability.  The  action  had  reference 
to  Neapolitan  bonds  with  coupons  attached  to  them,  which  latter 
referred  to  a  certificate.  The  plaintiff's  agent  being  in  possession 
of  the  coupons  belonging  to  the  plaintiff,  but  not  of  the  certificate, 
fraudulently  pledged  the  coupons  with  the  defendant,  who  took 
them  bona  fide.  On  an  action  by  the  plaintiff  to  recover  the 
amount  received  by  the  defendant  on  the  coupons,  Tindal,  C.J., 
left  it  to  the  jury  to  say  whether  the  coupons  without  the  certifi- 
cate "passed  from  hand  to  hand  like  money  or  bank  notes,"  in 
other  words,  "whether  they  had  acquired,  from  the  course  of 
dealing  pursued  in  the  City,  the  character  of  bank  notes,  bills  of 
exchange,  dividend  warrants,  exchequer  bills,  or  other  instru- 
ments which  formed  part  of  the  currency  of  this  country."  The 
jury,  indeed,  found  in  the  negative,  but  it  was  held  by  the  Court 
of  Common  Pleas  that  the  question  had  been  rightly  left  to  them. 
If  the  usage  had  been  found  the  other  way,  and  the  Court  had 
been  satisfied  with  the  verdict,  it  would  no  doubt  have  been 
upheld. 

We  must  by  no  means  be  understood  as  saying  that  mer- 
cantile usage,  however  extensive,  should  be  allowed  to  prevail  if 


32  History  -of  the  Law  Merchant 

contrary  to  positive  law,  including  in  the  latter  such  usages  asr 
having  been  made  the  subject  of  legal  decision,  and  having  been 
sanctioned   and  adopted   by   the   Courts,   have  become,   by   such 
adoption,  part  of  the  common  law.     To  give  effect  to  a  usage 
which  involves  a  defiance  or  disregard  of  the  law  would  be  obvi- 
ously contrary  to  a  fundamental  principle.     And  we  quite  agree 
that  this  would  apply  quite  as  strongly  to  an  attempt  to  set  up  a 
new  usage  against  one  which  has  become  settled  and  adopted  by 
the  common  law  as  to  one  in  conflict  with  the  more  ancient  rules  of 
the  common  law  itself.    Thus,  it  having  been  decided  in  the  two 
cases  of  More  v.  Manning,  i  Comyns'  Rep.  311,  and  Acheson  v. 
Fountain,  1  Str.  557,  that  when  a  bill  of  exchange  was  indorsed 
to  A.  B.,  without  the  words  "or  order,"  the  bill  was  nevertheless 
assignable  by  A.  B.,  by  further  indorsement,  Lord  Mansfield  and 
the  Court  of  King's  Bench,  in  the  case  of  Edic  v.  The  East  India 
Company,  2  Burr.  1216,  held  that  evidence  of  a  contrary  usage 
was  inadmissible.     In  like  manner  in  Grant  v.  Vaughan,  3  Burr. 
1516,  where  a  cash  note,  payable  to  bearer,  had  been  lost  by 
the  owner,  but  had  been  taken  by  the  plaintiff  bona  fide  for  value, 
on  an  action  on  the  note  by  the  latter  against  the  maker,  Lord 
Mansfield  having  left  it  to  the  jury  to  say  "whether  such  drafts 
as  this,  when  actually  paid  away  in  the  course  of  trade  dealing 
and  business,  were  negotiable  or  in  fact  and  practice  negotiable," 
and  the  jury,  influenced  no  doubt  by  the  natural  desire  to  protect 
the  owner  of  the  note,  having   found   for  the   defendant,   Lord 
Mansfield  and  the  Court  here  again  set  the  verdict  aside,  on  the 
ground  that,  the  law  having  been  settled  by  former  decisions  that 
notes  payable  to  bearer  passed  by  delivery  to  a  bona  fide  holder, 
the  judge  ought  to  have  directed  a  verdict  for  the  plaintiff. 

If  we  could  see  our  way  to  the  conclusion  that,  in  holding  the 
scrip  in  question  to  pass  by  delivery,  and  to  be  available  to  bearer, 
we  were  giving  effect  to  a  usage  incompatible  either  with  the 
common  law  or  with  the  law  merchant  as  incorporated  into  and 
embodied  in  it,  our  decision  would  be  a  very  different  one  from 
that  which  we  are  about  to  pronounce.  But  so  far  from  this 
being  the  case,  we  are,  on  the  contrary,  in  our  opinion,  only 
acting  on  an  established  principle  of  that  law  in  giving  legal  effect 
to  a  usage,  now  become  universal,  to  treat  this  form  of  security, 
being  on  the  face  of  it  expressly  made  transferable  to  bearer,  as 
the  representative  of  money,  and  as  such,  being  made  to  bearer, 
as  assignable  by  delivery.  This  being  the  conclusion  at  which 
we  have  arrived,  the  judgment  of  the  Court  of  Exchequer  will 

be  affirmed. 

Judgment  affirmed. 


TITLE  II. 

THE  NEGOTIABLE  INSTRUMENT,  A  CONTRACT. 
Section  I — In  General. 

Conine  v.   The  Junction  and  Breakwater  R.   R.   Co.    (1866),  5 
Houst.  {Del.),  288,  89  Am.  Dec.  230. 

Action  on  the  following  instrument : 

Gentlemen, — Eighteen  months  after  date  please  pay  to  my 
own  order,  six  thousand  nine  hundred  dollars,  for  value  received, 
that  being  the  amount  which  will  be  due  from  said  State  of  Dela- 
ware to  the  Junction  and  Breakwater  Railroad  Company,  January 
1  st,  1862,  out  of  the  semi-annual  instalments,  which  will  on  that 
day,  be  due  to  said  State  from  Richard  France  under  the  pro- 
visions of  the  act  of  the  General  Assembly  of  said  State,  entitled 
"An  Act  for  the  encouragement  of  Internal  Improvements  in  the 
State  of  Delaware,"  passed  at  Dover,  January  26th,  1859,  and 
your  receipt  indorsed  hereon  for  the  share  of  said  corporation  of 
said  instalment,  shall  be  good  against  said  Corporation. 

H.  W.  McColley, 
Treasurer  of  the  Junction  &  Breakwater  R.  R.  Co. 
To  Messrs.  France,  Broadbent  &  Co., 

Baltimore,  Md. 

This  instrument  was  indorsed  by  said  company  by  the  name 
of  H.  W.  McColley,  Treasurer,  and  accepted  upon  the  face 
thereof  thus:  "Accepted,  France,  Broadbent  &  Co."  The  firm 
of  France,  Broadbent  &  Co.  was  composed  of  Richard  France, 
Stephen  Broadbent,  Sr.,  Stephen  Broadbent,  Jr.,  and  William  C. 
France.  After  acceptance  the  instrument  was  negotiated  with 
Stephen  Broadbent,  Sr.,  who  afterwards  indorsed  and  negotiated 
the  same  with  the  said  plaintiff.  Afterward  the  said  draft  was 
duly  presented  for  payment  in  Baltimore  and  payment  demanded 
and  refused,  of  which  presentment,  demand  and  refusal  the 
defendant  had  due  notice.    Further  facts  appear  in  the  opinion. 

Gilpin,  Chief  Justice,  delivered  the  opinion  of  the  Court.  Con- 
sidering the  third  ground  of  defence  taken  by  the  defendant  as 


34  The  Negotiable  Instrument,  A  Contract 

fatal  to  the  plaintiff's  right  to  recover  in  this  action,  I  do  not  pro- 
pose to  express  any  opinion  on  the  question  as  to  whether  the 
draft,  which  is  the  subject  of  controversy,  was  or  not,  according 
to  its  terms  and  meaning,  made  payable  out  of  a  particular  fund, 
nor  the  other  question  as  to  the  legal  effect  of  the  draft's  having 
been  held  by  Stephen  Broadbent,  one  of  the  acceptors  as  an 
indorsee.  Much  has  been  said  and  well  said  on  this  point,  but 
for  the  reason  just  suggested,  I  do  not  deem  it  at  all  material  to 
pass  upon  them. 

By  agreement  of  the  parties  the  original  draft  is  made  a  part 
of  the  case  stated,  and  upon  examination  of  the  draft  we  find  that 
the  corporate  seal  of  the  company  is  affixed  or  impressed  upon  the 
paper  upon  the  left  of  the  signature  of  H.  W.  McColley,  Treas- 
urer of  the  Company.  The  usual  terms  indicating  the  affixing 
of  the  seal,  are  not  found  at  the  end  of  the  draft — they  are 
omitted  altogether.  If  the  case  had  been  tried  at  the  bar  of  the 
Superior  Court  before  a  jury,  the  fact  of,  whether  the  seal  had 
been  rightfully  affixed  to  the  draft,  might  have  been  controverted, 
notwithstanding  the  well  established  legal  presumption  arising 
from  the  presence  of  the  corporate  seal  affixed  to  the  instrument 
produced,  that  it  was  placed  there  by  competent  authority;  the 
rule  being,  that,  when  the  common  seal  of  a  corporation  appears 
to  be  affixed  to  an  instrument  and  the  signature  of  a  proper  officer 
is  proved  or  admitted,  the  Court  is  bound  to  presume  that  the 
officer  did  not  exceed  his  authority,  and  the  seal  itself  is  prima 
facie  evidence  that  it  was  affixed  by  proper  authority^;  and  the"" 
burden  of  showing  that  it  is  wrongfully  there  rests  upon  the  party 
objecting  to  it.  Lovit  v.  The  Steam  Saiv  Mill  Association,  6  Paige 
54.  The  President,  Manager  and  Company  of  the  Berks  and 
Dauphin  Turnpike  Road  v.  Myers,  6  Serg.  &  Rawle  12.  Baptist 
Church  v.  Mulford,  3  Halst.  (N.  J.)  183.  The  case  of  St.  Mary's 
Church,  7  Serg.  &  Rawle  530.  The  proprietors  of  the  Mill  Dam 
Foundry  v.  Hovey,  21  Pick.  417.  Phillips  v.  Coffee,  17  Illinois 
154.  Johnson  v.  Crawley,  25  Ohio  316.  Potter  et  al.  v.  Andros- 
coggins  &  Kennebec  R.  R.  Company,  37  Maine  316. 

But  in  this  case,  the  question  as  to  whether  the  seal  is  right- 
fully or  wrongfully  on  the  draft  cannot  be  raised.  For  the  parties 
have  made  the  seal  itself,  just  as  much  as  the  body  of  the  draft 
or  the  signature  of  the  Treasurer,  a  part  of  the  case  stated,  with- 
out suggesting  the  slightest  doubt  of  it  being  there  properly. 
Indeed,  it  is  alleged  in  the  case  stated  that  the  draft,  after  it  was 
indorsed  by  H.  W.  McColley,  Treasurer  of  the  Junction  and 
Breakwater   Railroad   Company,   was   sent   by  a   duly  appointed 


Conine  v.  The  Junction  and  Breakwater  R.  R.  Co.      35 

committee  of  said  company  to  Baltimore  for  acceptance,  and  was 
there  accepted  by  France,  Broadbent  &  Co.  It  passed  from  the 
hands  of  the  Treasurer  to  the  committee,  (of  course  with  the 
seal  on  it — for  it  does  not  appear  that  it  ever  afterwards  returned 
to  the  hands  of  the  Treasurer) — was  sent  by  them  to  Baltimore, 
was  accepted  by  the  drawees,  was  negotiated  by  the  company,  and 
is  now  produced  by  the  plaintiff  with  the  seal  on  it  and  made  a 
part  of  the  case  stated.  All  this  amounts  to  an  admission  that 
the  seal  was  placed  on  the  draft  rightfully  and  not  surreptitiously, 
improperly  or  fraudulently.  But  aside  from  this  admission,  the 
presence  of  the  seal  on  the  draft,  in  the  absence  of  evidence  or 
statement  impeaching  its  correctness,  concludes  the  question  here, 
as  to  its  having  been  affixed  by  proper  authority. 

The  more  approved  mode  of  executing  a  deed  by  a  corpora- 
tion, is  to  conclude  the  instrument  by  saying  "In  testimony 
whereof  the  common  seal  of  the  said  corporation  is  hereunto 
affixed."  But  this  is  not  necessary  to  the  validity  of  the  instru- 
ment. Nor  is  it  necessary  to  name  or  refer  to  the  seal  at  all. 
Mill  Dam  Foundry  v.  Hovey  21.  Pick.  417.  Godard's  Case  5 
Co.  R.  5.  Com.  Dig.  Fait  a  2.  2  Serg.  &  Razvle  R.  504.  In  the 
case  of  Mill  Dam  Foundry  v.  Hovey,  the  instrument  concluded 
in  the  words,  "In  witness  whereof  we  have  hereunto  set  our 
hands ;"  and  the  seal  consisted  of  a  wafer  and  a  small  bit  of  paper 
stamped  with  a  common  desk  seal  of  a  merchant.  And  it  was 
contended  that  this  was  not  the  seal  of  the  corporation,  the  words 
of  in  testimonium  being,  "we  have  hereunto  set  our  hands"  merely. 
But  the  Court  thought  otherwise,  and  decided  that  it  was  the 
deed  of  the  parties,  declaring  that  it  had  been  settled  that  words 
indicating  that  the  parties  had  affixed  their  seals,  were  not  abso- 
lutely necessary. 

The  question  reserved  for  the  decision  of  this  Court  is  this : 
whether  the  instrument  of  writing  sued  on  and  described  as  a 
bill  of  Exchange,  does  in  fact  and  in  law  constitute  a  valid  bill 
of  exchange,  so  as  to  entitle  the  present  indorsee  and  holder,  Wil- 
liam C.  Conine,  the  plaintiff,  to  sue  and  recover  upon  it  as  such. 
In  other  words,  is  it  transferable  by  mere  indorsement,  so  as  to 
entitle  the  holder  by  force  of  such  indorsement,  to  maintain  an 
action  upon  it,  in  his  own  name. 

At  the  common  law,  choses  in  action  could  not  be  assigned,  \ 
so  as  to  give  the  assignee  a  right  of  action  in  his  own  name.    Bills  \ 
of  Exchange,  however,  have  always  constituted  an  exception  to  \ 
this  rule. 

The  origin  of  the  latter  is  involved  in  some  obscurity.     It 


36  The  Negotiable  Instrument,  A  Contract 

is  very  questionable  whether  they  were  known  to  the  nations  of 
antiquity.  But  whether  they  were  invented  by  the  Jews  and 
Lombards,  (as  some  writers  have  supposed)  during  the  thirteenth 
century,  and  after  their  banishment,  in  order  the  more  readily  to 
draw  their  effects  out  of  France  and  England ;  or  by  the  Gibelins, 
upon  their  expulsion  from  Italy  by  the  Guelphs,  in  order  to  avoid 
confiscation  of  their  effects  by  their  enemies,  certain  it  is  that  we 
find  them  to  have  been  in  use  among  the  maritime  and  com- 
mercial communities,  inhabiting  the  shores  of  the  Mediterranean 
as  early  as  the  fourteenth  century ;  from  which  region,  it  is  most 
probable,  they  were  introduced  into  England  about  the  year  1381. 
The  facilities  which  they  afforded  for  the  safe  transmission 
of  money,  or  values,  from  one  country  to  another,  soon  brought 
them  into  general  use  among  merchants ;  and  the  use  of  them 
becoming  an  established  custom,  it  is  believed  they  received  judi- 
cial recognition  at  a  very  early  day,  although  no  authentic 
decision  in  regard  to  the  custom,  can  be  found  prior  to  the  time 
of  James  the  First,  1603.  The  first  case  of  which  we  have  any 
knowledge,  is  that  of  Marten  v.  Boure  reported  Cro.  Jac.  6 — 7. 
The  declaration  in  the  case,  which  is  set  out  in  the  report, 
describes  the  cause  of  action  as  a  bill  of  Exchange,  "signed  with 
rtiis  hand  secundum  usuin  mercatorum."  And  from  that  day  to 
Uhis,  no  case  can  be  found  in  the  books,  of  a  bill  of  exchange  with 
(a  seal  affixed  to  it. 

The  most  solemn  and  authentic  act,  as  matter  of  contract, 
for  finally  and  conclusively  binding  men  to  the  observance  of  good 
faith  toward  each  other,  known  to  the  civil  law,  was  called  a 
stipulation  ;  it  was  entered  into  before  the  civil  magistrate  upon 
questions  and  answers,  carefully  propounded  and  taken  in  writing, 
intended  to  explain  the  nature  and  character  of  the  transaction, 
and  to  show  that  there  was  no  surprise,  and  that  the  contract  of  the 
parties  was  their  maturely  considered  and  deliberate  act.  It  could 
only  be  impeached  by  fraud. 

Deeds,  by  the  common  law,  are  strikingly  analogous  to  the 
ancient  stipulation  of  the  Civilians.  The  ancient  forms  and  cere- 
monies prescribed  by  the  common  law,  for  proper  authentication 
and  establishment  of  a  deed,  were  writing,  sealing  and  delivery, 
and  if  the  parties  were  illiterate,  also  reading  of  the  instrument, 
all  indicating  a  solemn  and  deliberate  act,  intended  to  be  final  and 
conclusive  between  the  parties.  Sealing  was  an  essential  element 
though  signing  was  not. 

Authentic  history  informs  us,  that  seals  come  down  to  us 
from  the  most  remote  antiquity,  and  were  originally  derived  from 


Conine  v.  The  Junction  and  Breakwater  R.  R.  Co.       37 

the  nations  of  the  far  East.  The  scriptures  declare  that  the  ''writ- 
ing that  is  written  in  the  King's  name,  and  sealed  with  the  King's 
seal,  can  no  man  reverse."  Writings  under  seal  constituted  part 
of  the  formalities  of  a  Jewish  purchase  of  land.  "And  I  bought 
the  field  of  Hanameel,  and  weighed  him  the  money,  and  subscribed 
the  evidence  and  sealed  it,  and  took  witnesses."  see  Jeremiah, 
chap.  32,  1  Kings,  chap.  21,  Esther,  chap.  8.     Daniel,  chap.  8,  9. 

Seals,  however,  did  not  come  into  general  use  in  England 
until  after,  or  about  the  time  of,  the  conquest ;  indeed,  prior  to 
that  time,  they  were  almost  entirely  unknown  to  our  English 
ancestors ;  and,  probably,  the  most  ancient  authentic  sealed  docu- 
ment in  England,  is  the  charter  granted  by  Edward  the  Confessor 
to  Westminister  Abbey.   A.  D.  1017. 

Deeds  or  sealed  instruments,  are  not  only  of  much  higher 
antiquity  than  bills  of  exchange,  but  they  are  of  a  totally  different 
origin.  They  cannot  be  said  to  be  made  secundum  iisum  merca- 
toriim,  since  they  find  their  recognition  and  validity  in  the  more 
ancient  rules  of  the  common  law.  On  the  other  hand,  bills  of 
exchange  find  their  origin  and  sanction  in  the  usage  and  custom 
of  merchants,  the  lex  mercatoria,  a  particular  or  peculiar  system, 
which,  being  in  the  interest  of  commerce,  became  at  length  gradu- 
ally ingrafted  into,  and  established  as  a  part  of  the  common  law 
itself.  By.  the  common  law,  contracts  are  distinguished  into  two 
kinds, — contracts  under  seal,  which  are  specialties,  and  contracts 
not  under  seal,  which  are  simple  contracts.  It  can  hardly  be  nec- 
essary to  say,  that  a  bill  of  exchange  is  not  a  specialty,  for  no 
contract,  by  that  law,  is  held  to  be  a  specialty  unless  it  be 
under  seal,  or  a  matter  of  record.  But  notwithstanding  a__bill_ 
of  ex-change  is  only  a  simple  contract,  it  nevertheless  differs  from 
other  simple  contracts  in  two  very  important  particulars,  namely, 
its  negotiability,  and  its  presumed  valuable  consideration.  At 
common  law  no  chose  in  action  was  assignable,  until  bills  of 
exchange  became  by  force  of  the  custom  of  merchants,  the  excep- 
tion to  the  general  rule.  Notes  were  made  assignable  in  1704  by 
the  statute  3  and  4  Anne.  Bonds,  and  specialties,  as  well  as  notes, 
are  made  assignable  by  our  statute; — the  last  by  simple 
indorsement,  the  two  former  "under  hand  and  seal  and  before  at 
least  two  credible  witn£i£££,."  Chap.  63,  sec.  8.  Revised  statutes. 
If  a  specialty  had  been  assignable  by  mere  indorsement,  where 
would  have  been  the  necessity  for  this  statutory  provision?  The 
distinction  between  a  bill  of  exchange  and  a  specialty,  is  found 
noticed  in  almost  all  elementary  works  on  contracts — Chitty  on 
Contracts  3.  4.     Chitty  on  Bills  12.  13.     Story  on  Bills,  sec.  16. 


38  General  Requisites  of  the  Contract 

2  Blac.  Com.  465.  466.  All  contracts  under  seal  are  specialties, 
sealing  and  delivery  being  the  particular  form  and  ceremony  which 
alter  the  nature  and  operation  of  the  agreement.  Forms,  conse- 
crated by  time  and  usage,  become  substance.  The  seal  is  sub- 
stance and  changes  the  nature  and  operation  of  the  contract.  It 
seems  to  me  therefore,  that  the  question  which  I  have  been  con- 
sidering, is  settled  upon  principle  against  the  plaintiff.  But  how- 
ever this  may  be,  it  has  been  held  as  settled  upon  authority  for 
more  than  thirty  years  past. 

In  the  case  of  Warren  v.  Lynch,  5  Johns.  239,  it  was  con- 
ceded by  counsel  on  both  sides,  and  by  the  court,  Chancellor  Kent, 
then  Chief  Justice,  presiding  and  delivering  the  opinion,  that  a 
sealed  note  is  not  negotiable. 

In  the  case  of  Clark  v.  The  Farmers'  Woolen  Manufacturing 
Company  of  Benton,  15  Wendell  R.  256,  it  was  held  by  the 
Supreme  Court  of  the  State  of  New  York,  first,  that  a  note  for 
the  payment  of  money  under  seal,  though  in  all  other  respects 
like  a  promissory  note,  was  not  negotiable,  and  that  an  action 
could  not  be  obtained  upon  it  in  the  name  of  a  person  to  whom  it 
had  been  transferred ;  secondly,  that  the  effect  of  affixing  the 
seal  of  a  corporation  to  a  contract,  is  the  same  as  when  a  seal 
is  affixed  to  the  contract  of  an  individual ;  it  renders  the  instru- 
ment a  specialty. 

I  am  not  aware  that  this  decision  has  ever  been  overruled,  or 
even  doubted. 

We  are  therefore  of  opinion  that  the  plaintiff  is  not  entitled 
to  recover  on  this  action.  .         k    v 


Section  II — General  Requisites. 

THE  INSTRUMENT   MUST  BE  IN    WRITING.  §3 — I. 

Thomas  ct  at.  v.  Bishop  (1734),  2  Strange,  955. 

The  plaintiffs  were  indorsees  of  a  bill  of  exchange  drawn 
from  Scotland  upon  the  defendant,  in  these  words,  "At  thirty  days 
"  sight  pay  to  /.  S.  or  order  200/.  value  received  of  him,  and  place 
"  the  same  to  account  of  the  York  Buildings  company,  as  per 
"advice  from  Charles  Mildmay.  To  Mr.  Humphrey  Bishop, 
"  cashier  of  the  York  Buildings  company,  at  their  house  in  Win- 
"  chester-street,  London.  Accepted  13  June  1732.  per  H.  Bishop." 

This  bill  not  being  paid,  an  action  was  brought  against  the 


Geary  v.  Physic  39 

defendant  upon  his  acceptance.  And  the  defendant  proved,  that 
the  letter  of  advice  was  addressed  to  the  company ;  and  that  the 
bill  being  brought  to  their  house,  he  was  ordered  to  accept  it, 
which  he  did  in  the  same  manner  as  he  had  accepted  other  bills. 
But  Mr.  J.  Page,  who  had  tried  the  cause,  directed  the  jury  to 
find  for  the  plaintiff,  which  they  did  accordingly. 

And  now  upon  motion  for  a  new  trial,  the  court  held,  .that 
the  direction  was  right.  For  the  bill  on  the  face  of  it  imports  to 
be  drawn  upon  the  defendant,  and  it  is  accepted  by  him  generally,- 
and  not  as  servant  to  the  company,  to  whose  account  he  had  no 
right  to  charge  it  till  actual  payment  by  himself.  And  this  being 
an  action  by  an  indorsee,  it  would  be  of  dangerous  consequence 
to  trade,  to  admit  of  evidence  arising  from  extrinsic  circum- 
stances, as  the  letter  of  advice.  And  they  said,  this  differed  widely 
from  the  case  of  a  bill  addressed  to  the  master,  and  under-wrote 
by  the  servant ;  where  undoubtedly  the  servant  would  not  be 
liable;  but  his  acceptance  would  be  considered  as  the  act  of  his 
master.  A  bill  of  exchange  is  a  contract  by  the  custom  of  mer- 
chants, and  the  whole  of  that  contract  must  appear  in  writing. 
Now  here  is  nothing  in  writing  to  bind  the  company.,  nor  can  any 
action  be  maintained  against  them  upon  the  bill ;  for  the  addition 
of  cashier  to  the  defendant's  name  is  only  to  denote  the  person 
with  more  certainty,  and  the  York  Buildings  house  is  only  to 
inform  the  order,  where  the  drawee  is  to  be  found ;  and  the  direc- 
tion whose  account  to  place  it  to,  is  for  the  use  of  the  drawee  only. 
And  they  compared  it  to  the  case  in  Carth.  5.  2  Ven.  307.  where 
a  bill  was  drawn  payable  to  Price,  for  the  use  of  Calvert,  and  held 
that  the  legal  property  was  in  Price,  which  is  stronger  than  the 
present  case.  They  said  it  might  be  otherwise  if  the  action  had 
been  by  /.  5".  who  was  privy  to  the  transaction,  and  it  had 
appeared  he  tendered  the  bill  as  a  bill  on  the  company.  But  this 
plaintiff  being  a  stranger,  they  could  not  consider  those  circum- 
stances.   The  plaintiffs  had  their  judgment. 


Geary  v.  Physic  {page  266). 


rjkt^-t^i^-^- .  ■A-A- 


(U^, 


40  General  Requisites  of  the  Contract 

the  instrument  must  be  signed.  §  3 — i. 

Reg.  v.  Harper,  L.  R.,  7  Q.  B.  D.  (1881),  78. 

The  following  case  was  stated  by  Stephen,  J : — 
John  Harper  was  convicted  of  forgery  before  me  at  Durham 
assizes  under  the  following  circumstances:  Messrs.  Watson  & 
Son,  of  Kilmarnock,  having  supplied  Harper  with  some  machin- 
ery, drew  a  bill  upon  him  for  the  price,  and  forwarded  it  to  him 
for  acceptance,  unsigned  by  the  drawers.  It  had  been  arranged 
that  Harper  should  procure  the  indorsement  of  a  solvent  person, 
and  should  himself  accept  the  bill.  Harper  returned  it  accepted 
by  himself,  and  purporting  to  be  indorsed  by  one  Hunt.  It  was 
proved  that  Hunt's  indorsement  had  been  forged  by  Harper.  On 
getting  the  bill  back,  Watson  &  Son  indorsed  it  and  paid  it  into 
the  bank  for  collection  when  due.  They  did  not  at  any  time  sign 
it  as  drawers. 

The  following  is  a  copy  of  the  bill  of  exchange : — 

"  £22  10s.  <\d.  "  Kilmarnock,  2  Nov.  1880. 

"  One  month  after  date  pay  to  me  or  order  the  sum  of 
£22  10s.  \d.,  that  being  for  value  received  in  machinery. 

"Indorsed,  |£ 
"  Mr.  J.  Harper,  "  John  Hunt. 

"  Contractor  and  Builder,  "  John  Watson  &  Son. 

"  Rutland  Street,  Pallion, 
"Sunderland." 

Across  the  bill  was  written  "Accepted  payable  at  the  Union 
Bank  of  London.    John  Harper." 

The  indictment  contained  six  counts,  which  charged  Harper: 

1.  With  feloniously  forging  a  certain  indorsement  to  and  on 
a  bill  of  exchange. 

2.  With  feloniously  forging  an  indorsement  to  and  on  a  cer- 
tain paper  writing,  which  said  paper  writing  is  in  the  form  of,  and 
purports  to  be,  a  bill  of  exchange,  unsigned  by  any  drawer 
thereof. 

3.  Feloniously  forging  a  crtain  indorsement  to  and  on  a 
certain  paper  writing. 

In  the  4th,  5th,  and  6th  counts  he  was  charged  with  felon- 
iously uttering  the  documents  described  in  the  1st,  2nd,  and  3rd 
counts. 


McCall  v  Taylor  41 


I  was  of  opinion  that  all  the  counts  were  bad,  except  the  ist 
and  4th,  but  I  left  the  whole  matter  to  the  jury. 

The  jury  returned  a  general  verdict  of  guilty,  and  I  sentenced 
Harper  to  be  imprisoned  with  hard  labour  for  nine  months,  but 
suspended  the  execution  of  the  sentence  till  the  decision  of  this  case 
by  the  Court  for  Crown  Cases  Reserved. 

The  question  for  the  Court  is,  whether,  under  the  circum- 
stances stated,  Harper  was  properly  convicted  of  either  of  the 
offences  charged  in  the  ist  or  4th  counts  of  the  indictment,  and 
whether  any  of  the  other  counts  charge  a  felony  ? 

No  counsel  appeared  upon  either  side. 

Lord  Coleridge,  C.J.  The  conviction  cannot  be  sustained. 
The  instrument  was  not  a  bill  of  exchange;  it  was  an  inchoate 
bill  of  exchange.  The  point  requires  no  authority,  though  it  has 
the  authority  of  the  cases  of  McCall  v.  Taylor,  34  L.  J.  (C.P.) 
365 ;  Stoessinger  v.  South  Eastern  Ry.  Co.,  3  E.  &  B.  549 ;  Peto 
v.  Reynolds,  23  L.  J.  (Ex.)  98;  9  Ex.  410;  11  Ex.  418,  and  Rex 
v.  Pate  man,  Russ.  &  Ry.  455. 

Stephen,  J.  Though  I  entirely  agree  with  the  opinion  ex- 
pressed by  my  Lord,  I  cannot  help  observing  that  the  act  of  the 
prisoner  had  all  the  effect  of  a  forgery  punishable  under  the 
statute  as  a  felony;  the  prisoner  could,  however,  have  been 
indicted,  and  ought  to  have  been  indicted,  for  forgery  at  common 
law. 

Grove,  Hawkins,  and  Lopes,  JJ.,  concurred. 

Conviction  quashed. 


McCall  v.  Taylor,  34  L.  J.  R.  C.  P.  (1865),  365. 

Suit  on  an  instrument  in  the  words  and  figures  following : 
£300  Four  months  after  date  pay  to  my  order  the  sum  of 
three  hundred  pounds  for  value  received. 
To  Captain  Taylor, 
Ship  Jasper. 

There  was  no  date  to  this  instrument  nor  the  signature  of 
any  drawer ;  but  there  was  written  across  it  by  the  defendant  these 
words :   "Accepted,  William  Taylor." 

The  first  count  was  against  the  defendant  and  as  the  accep- 
tion  of  a  bill  of  exchange  for  £300.  The  second  count  was  on 
the  same  instrument  as  a  promissory  note,  of  which  the  defendant 


42  General  Requisites  of  the  Contract 

was  alleged  to  be  the  maker.  There  were  counts  also  for  goods 
sold  and  delivered  and  on  an  account  stated. 

Pleas  to  the  first  count — a  traverse  of  the  acceptance ;  to  the 
second — a  traverse  of  the  making;  and  to  the  residue  of  the  dec- 
laration— never  indebted. 

The  learned  Judge  was  of  opinion  that  the  instrument 
could  not  be  declared  on  either  as  a  bill  of  exchange  or  promissory 
note,  and  a  verdict  was  accordingly  entered  for  the  defendant ; 
but  leave  was  reserved  to  the  plaintiff  to  move  to  enter  a  verdict 
on  either  the  first  or  second  counts,  if  the  instrument  could  be 
declared  on  as  either  a  bill  or  note.  A  rule  nisi  to  that  effect  having 
been  subsequently  obtained  by  Hanncn,  for  the  plaintiff, — 

Day  now  shewed  cause. 

Hanncn  and  Lord,  in  support  of  the  rule. 

Erle,  C.J. — I  am  of  opinion  that  this  rule  should  be  dis- 
charged. The  declaration  is  on  a  bill  of  exchange,  and  also  on 
the  same  instrument  described  as  a  promissory  note.  The  instru- 
ment in  question  was  in  this  form — [The  learned  Judge  read  it]. 
— It  has  no  date  and  no  drawer's  name;  but  the  defendant  wrote 
his  acceptance  across  it ;  and  the  question  is,  has  the  holder  of 
such  an  instrument  a  right  to  declare  on  it  either  as  a  bill  of 
exchange  or  promissory  note?  It  certainly  is  not  a  bill  of 
exchange,  nor  is  it  a  promissory  note ;  and  there  has  been  no  case 
cited  as  an  authority  for  its  being  considered  as  either  a  bill  or  a 
note.  It  is,  in  fact,  only  an  inchoate  instrument,  though  capable 
of  being  completed.  Let  the  party  who  has  the  authority  to  make 
it  a  complete  instrument  do  so;  but  if  he  will  not  do  this,  he 
cannot  sue  on  it.  The  case  of  Stoessigcr  v.  the  South-Eastern  Rail- 
way Company,  3  El.  &  B.  549;  23  Law  J.  (N.  S.)  (Ex.)  O.  B. 
293,  is  directly  in  point.  In  the  other  cases  which  have  been 
referred  to,  where  effect  was  given  to  the  instrument,  nothing 
more  had  to  be  done  to  make  the  instrument  complete ;  and  so 
those  cases  are  distinguishable  from  the  present.  The  captain" 
may  possibly  have  given  his  acceptance  for  the  necessaries  sup- 
plied  to  the  ship,  and  the  plaintiff  may  have  had  authority  to  put 
his  name  as  drawer ;  but  that  should  have  been  shewn  by  his  L 
doing  so.  As  it  is,  he  seeks  to  sue  on  it  without  putting  his  name 
to  it  as  drawer ;  and  it  may  be  that  the  reason  is,  because  he  never  J> 
had  authority  to  insert  a  drawer's  name.  It  is,  however,  sufficient 
for  us  to  say  that  the  instrument  is  inchoate  and  imperfect ;  and  | 
therefore  there  is  no  ground  for  making  this  rule  absolute.       y 

Willes,  J.,  Byles,  J.,  and  Smith,  J.,  concurred. 

Rule  discharged. 


White  v.  Cushing  43 

MUST  CONTAIN  AN  UNCONDITIONAL  PROMISE  OR  ORDER.      §  3 — 2. 

White  v.  Cushing  (1896),  88  Me.  339,  5/  Am.  St.  Rep.  402. 

T.  W.  Vose,  for  plaintiff. 
/.  B.  Peaks,  for  defendant. 

Foster,  J.  The  plaintiff  sues  as  indorsee  of  an  order  signed 
by  the  defendant  of  the  following  tenor : 

"$120.  Dover,  Oct.  27th,  1893. 

Piscataquis  Savings  Bank. 
"Pay  James  Lawler,  or  order,  one  hundred  and  twenty  dol- 
lars, and  charge  to  my  account  on  book  No.  . 

J.  N.  Cushing." 
"  Witness— 

"The  bank  book  of  the  depositor  must  accompany  this  order." 

The  order  was  indorsed  in  blank  on  the  back  by  James 
Lawler  and  Samuel  Lewis,  and  the  plaintiff  claimed  to  recover 
against  the  defendant  as  upon  a  negotiable  instrument.  The 
real  question  presented  is  whether  the  instrument  declared  on 
Js_  negotiable,  so  that  an  action  may  be  maintained  upon  it  in  the 
name  of  the  indorsee. 

To  constitute  a  negotiable  draft  or  order,  it  must  be  a  written 
order  from  one  party  to  another  for  the  payment  of  a  certain 
sum  of  money,  and  that  absolutely,  and  without  any  contingency 
that  would  embarrass  its  circulation,  to  a  third  party  or  his  order 
or  bearer. 

It  has  often  been  held  that  a  bill  or  note  is  not  negotiable  if 
made  payable  out  of  a  particular  fund.  But  there  is  a  distinc- 
tion between  such  instruments  made  payable  out  of  a  particular 
fund,  and  those  that  are  simply  chargeable  to  a  particular  account. 
In  the  latter  case,  the  payment  is  not  made  to  depend  upon  the 
adequacy  of  that  fund,  the  only  purpose  being  to  inform  the 
drawee  as  to  his  means  of  reimbursement,  and  the  negotiability 
of  the  instrument  is  not  affected  by  it. 

The  objection  that  is  raised  to  the  negotiability  of  this  instru- 
ment is,  not  that  it  is  made  payable  out  of  a  particular  fund,  but 
that  it  is  subject  to  such  a  contingency  as  necessarily  embarrasses 
its  circulation  and  imposes  a  restraint  upon  its  negotiability,  by 
means  of  these  words  contained  upon  the  face  of  the  order :  "The 
bank  book  of  the  depositor  must  accompany  this  order."  Although 
these  words  are  upon  the  face  of  the  order  below  the  signature 


44  General  Requisites  of  the  Contract 

of  the  drawer,  they  were  there  at  the  time  of  its  inception, 
hecame  a  suhstantive  part  of  it  and  qualified  its  terms  as  if  they 
had  been  inserted  in  the  body  of  the  instrument.  Littlefield  v. 
Coombs,  71  Maine,  no;  dishing  v.  Field,  70  Maine,  50,  54; 
Johnson  v.  Heagan,  23  Maine,  329;  Barnard  v.  dishing,  4  Met- 
calf,  230;  Heywood  v.  Pcrrin,  10  Pick.  228;  Benedict  v.  Cowden, 
49  N.  Y.  396;  Costelo  v.  Crowell,  127  Mass.  293,  and  cases  there 
cited. 

Was  the  order  negotiable  ?  The  answer  to  that  depends  upon 
the  effect  of  the  words  "The  bank  book  of  the  depositor  must 
accompany  this  order."  If  not  negotiable,  the  plaintiff  as  indorsee 
can  not  maintain  an  action  upon  it.  Noyes  v.  Gilman,  65  Maine, 
589.  If  their  effect  is  such  as  constitute  a  contingency  in  relation 
to  the  payment  of  the  order,  dependent  upon  the  production  of  the 
drawer's  bank  book  by  the  holder  or  indorsee  of  the  order,  then 
they  must  be  regarded  as  such  an  embarrassment  to  the  negotia- 
tion of  the  order,  and  such  a  restriction  upon  its  circulation  for 
commercial  purposes  as  to  render  it  non-negotiable. 

Without  these  words  the  order  is  payable  absolutely,  and 
there  is  no  apparent  uncertainty  affecting  its  negotiability.  With 
them,  the  order  is  payable  only  upon  contingency,  or  condition, 
and  that  is  upon  the  production  of  the  drawer's  bank  book.  This 
is  rendered  imperative  from  the  language  employed,  and  the  bank 
upon  which  the  order  is  drawn,  would  have  the  right  to  insist  upon 
such  production  of  the  book  in  compliance  with  the  terms  of  the 
order;  and  the  case  shows  that  it  has  refused  payment  upon 
presentation  of  the  order  for  the  reason  that  it  was  not  accom- 
panied by  the  bank  book.  It  cannot,  therefore,  be  regarded  as 
payable  absolutely  and  without  any  contingency  that  would  embar- 
rass  its  circulation.  The  drawer  has  it  in  his  power  to  defeat  its 
payment  by  withholding  the  bank  book.  Certainly  the  bank  book 
of  the  depositor  is  within  his  own  control  rather  than  that  of  the 
indorsee  of  this  order. 

It  was  the  necessity  of  certainty  and  precision  in  mercantile 
affairs  and  the  inconveniences  which  would  result  if  commercial 
paper  was  incumbered  with  conditions  and  contingencies,  that  led 
to  the  establishment  of  an  inflexible  rule  that  to  be  negotiable,  they 
must  be  payable  absolutely  and  without  any  conditions  or  contin- 
gencies to  embarrass  their  circulation,  American  Ex.  Bank  v. 
Blanchard,  7  Allen,  333.  In  that  case  the  words,  "subject  to  the 
1  policy,"  being  included  in  a  promissory  note,  were  held  to  render 
the  promise  conditional  and  not  absolute,  and  so  the  note  was 


White  v.  Cushing  45 

held  not  to  be  negotiable.    Noyes  v.  Gilman,  65  Maine,  589,  591 ; 
Hubbard  v.  Mosely,  11  Gray,  170. 

A  case  in  every  essential  like  the  one  we  are  considering  was 
before  the  Supreme  Court  of  Pennsylvania  in  1891.  A  fac  simile 
of  the  order  is  given  in  the  opinion.  No  two  cases  could  be 
nearer  alike.  There,  as  here,  the  order  was  drawn  on  a  savings 
bank.  The  suit  was  by  the  indorsee  against  the  drawer  as  in  this 
case.  There,  as  here,  the  order  contained  a  statement  upon  its 
face,  but  below  the  signature  of  the  drawer,  that  the  "Deposit 
book  must  be  at  bank  before  money  can  be  paid."  In  discussing 
the  question  of  its  negotiability  cases  are  cited  from  the  courts  of 
Maine,  Vermont,  Massachusetts  and  New  York,  as  well  as  from 
Pennsylvania.  In  the  course  of  the  opinion  the  court  say:  "It 
sufficiently  appears  from  the  memoranda  on  its  face  that  it  was 
drawn  on  a  specially  deposited  fund  held  by  the  bank  subject  to 
certain  rules  and  regulations,  in  force  between  it  and  the  depositor, 
requiring  certain  things  to  be  done  before  payment  could  be 
required,  viz:  previous  notice  of  depositor's  intention  to  draw 
upon  the  fund,  return  of  the  notice  ticket  with  the  order  to  pay, 
and  presentation  of  the  deposit  book  at  the  bank,  so  that  the  pay- 
ment might  be  entered  therein."  *  *  *  "It  is,  in  substance,  merely 
an  order  on  the  dollar  savings  bank  to  pay  J.  W.  Quinn,  or  order, 
nine  hundred  dollars  in  nine  weeks  from  date,  or  February  1, 
1888,  provided  he  or  his  transferee  present  to  the  bank,  with  the 
order,  the  notice  ticket,  and  also  produce  at  and  before  the  time 
of  payment  the  drawer's  deposit  book.  As  already  remarked, 
these  are  undoubtedly  pre-requisites  which  restrain  or  qualify  the 
generality  of  the  order  to  pay  as  contained  in  the  body  of  the 
instrument.  They  are  also  pre-requisites  with  which  it  may  be 
difficult,  if  not  sometimes  impossible,  for  the  payee,  transferee,  or 
holder  of  such  an  order  to  comply."  Iron  City  Nat.  Bank  v. 
McCord,  139  Pa.  St.  52  (23  Am.  State  Rep.  166). 

The  order  in  question  was  drawn  upon  a  savings  bank,  and  it 
is  common  knowledge  that  all  such  banks  in  this  State  have  a 
by-law  which  all  depositors  are  required  to  subscribe  to,  that 
"no  money  shall  be  paid  to  any  person  without  the  production 
of  the  original  book  that  such  payment  may  be  entered  therein." 

This  court  in  the  case  of  Sullivan  v.  Lcz^iston  Inst,  for  Sav- 
ings, 56  Maine,  507,  has  considered  the  purpose  and  necessity  of 
these  salutary  regulations.  We  should  be  slow  to  countenance 
any  departure  from  this  rule  needed  for  the  protection  of  depos 
itors  in  our  savings  banks  now  numbering  more  than  160,000,  and 
where  deposits  aggregate  nearly  $60,000,000. 


46  General  Requisites  of  the  Contract 

Inasmuch  as  this  order  is  not  negotiable  and  no  suit  can  be 
maintained  upon  it  by  the  plaintiff  as  indorsee,  it  becomes 
unnecessary  to  consider  the  other  exceptions. 

Exceptions  sustained. 


SIGNING  IN   REPRESENTATIVE  CAPACITY.  §  22. 

INDICATION    OF   A    PARTICULAR   FUND   OUT   OF    WHICH    REIMBURSE- 
MENT IS  TO  BE  MADE.  §  5 — I. 

Schmittler  v.  Simon  (1886),  101  N.  Y.  554,  34  Am.  Rep.  737. 

Wm.  W.  Jenks,  for  appellant. 

Joseph  B.  Reilly,  for  respondent. 

Ruger,  Ch.J.  The  plaintiff  claimed  to  recover  as  the  holder 
of  a  draft,  drawn  upon  and  accepted  by  the  defendant,  reading 
as  follows : 

"New  York,  February  26,  1877. 

"Mr.  Adam  Simon,  executor,  will  please  pay  to  Johannes 
Schmittler  or  his  order,  on  the  first  day  of  July,  which  will  be 
in  the  year  1879,  the  sum  of  $900,  with  seven  per  cent  interest, 
to  be  paid  besides  this  amount  yearly,  July  month,  and  charge  the 
amount  against  me  and  of  my  mother's  estate. 

"William  J.  Scharen." 

Written  upon  the  face :  "Accept,  Adam  Simon,  "executor," 
and  indorsed,  "Pay  to  the  order  of  Mary  Schmittler,  the  amount 
of  note.  "Johannes  Schmittler." 

Upon  the  trial,  after  proving  the  execution  of  the  draft,  its 
acceptance  and  transfer,  and  offering  to  prove  the  payment  of 
a  consideration  by  the  plaintiff  to  the  payee,  which  was  objected 
to  by  defendant,  and  excluded  by  the  court,  the  plaintiff  rested. 
The  defendant  thereupon  moved  to  nonsuit  upon  the  ground  that 
the  obligation  was  not  binding  upon  the  defendant  personally, 
but  he  was  liable  thereon,  if  at  all,  in  his  representative  character 
alone,  and  that  it  was  payable  out  of  a  specific  fund,  and  a  recovery 
thereon,  could  not  be  had  without  proving  the  existence  and 
extent  of  such  fund.  The  court  thereupon  nonsuited  the  plaintiff, 
to  which  decision  she  excepted.  The  General  Term  having 
affirmed  the  determination  of  the  trial  court,  the  plaintiff  took 
this  appeal. 


SCHMITTLEK    V.    SlMON  47 

We  think  the  court  below  erred  as  to  both  of  the  grounds 
upon  which  their  judgment  proceeded.  That  the  defendant  was 
liable  upon  the  draft,  if  liable  at  all,  in  his  individual  capacity 
alone,  seems  under  the  authorities  to  admit  of  no  doubt. 

Neither  executors  nor  administrators  have  power  to  bind  the 
estate  represented  by  them  through  an  executory  contract,  having 
for  its  object  the  creation  ofa  new  liability,  not  founded  upon  the 
contract  or  'obligation  oTHfe  testator  or  intestate.  They  take  the 
personal  property  as  owners  and  have  no  principal  behind  them 
for  whom  they  can  contract.  The  title  vests  in  them  for  the 
purposes  of  administration,  and  they  must  account  as  owners 
to  the  persons  ultimately  entitled  to  distribution.  In  actions 
upon  contracts  made  by  them,  however  they  may  describe  them- 
selves therein,  they  are  personally  liable,  and  in  actions  thereon 
the  judgment  must  be  de  bonis  propriis.  Not  so,  however,  upon 
contracts  made  by  their  testator  or  intestate ;  in  such  case  the 
judgment  is  always  de  bonis  tcstatoris.  (Gillet  v.  Hutchinson's 
Adm.,  24  Wend.  184;  Ferrin  v.  Myrick,  41  N.  Y.  315;  Austin  v. 
Monroe,  47  id.  360,  366.) 

The  action  here  is  exclusively  upon  the  undertaking  of  the 
defendant,  importing  a  promise  to  pay  the  sum  of  $900  on  the 
1st  day  of  July,  1879,  to  the  payee  of  the  draft  or  his  order  for  a 
consideration  received  by  the  promisor.  No  facts  are  alleged  or 
proved,  showing  any  liability  on  the  part  of  the  defendant's  tes- 
tator to  the  drawee  of  the  draft,  or  any  legal  demand  existing  in 
his  favor,  against  the  estate  represented  by  the  defendant. 

It  follows  that  the  obligation  must  be  held  to  be  the  indi- 
vidual contract  of  the  defendant,  and  enforceable  as  such  by  a 
judgment  against  him,  and  execution  to  be  levied  de  bonis  pro- 
priis, or  it  is  nudum  pactum  creating  no  liability  whatever. 

The  cases  are  very  numerous  to  the  effect  that  the  addition 
of  an  official  character,  to  the  signatures  of  executors  and  admin- 
istrators, in  executing  written  contracts  and  obligations  has  no 
significance,  and  operates  merely  to  identify  the  person  and  not 
to  limit  or  qualify  the  liability.  Thus  it  was  held  in  Finney  v. 
Administrators  of  Johnson  (8  Wend.  500),  that  a  bond  given  by 
administrators  in  their  representative  capacity  to  a  creditor  for  a 
debt  of  their  intestate,  was  the  individual  obligation  of  the  admin- 
istrators and  enforceable  against  them  de  bonis  propriis  only; 
that  the  description  of  the  obligors  in  the  bond  as  administrators, 
and  their  promise  in  that  character  was  surplusage,  and  they  were 
chargeable  upon  such  a  bond  only  In  their  personal  capacity. 
(See,  also,  Gould  v.  Ray,  13  Wend.  633.)     Parsons  on  Bills  and 


48  General  Requisites  of  the  Contract 

Notes,  vol.  i,  page  161,  lays  down  the  rule  that  "an  administrator 
or  executor  can  only  bind  himself  by  his  contracts ;  he  cannot  bind 
the  assets  of  the  deceased.  Therefore,  if  he  make,  indorse  or 
accept  negotiable  paper,  he  will  be  held  personally  liable,  even  if 
he  adds  to  his  own  name  the  name  of  his  office.  Signing  a  note 
for  example,  'A.  as  executor  of  B.'  for  this  will  be  deemed  only 
a  part  of  his  description  or  will  be  rejected  as  surplusage."  To 
similar  effect  are  Pumpelly  v.  Phelps  (40  N.  Y.  59),  Taft  v. 
Brewster  (9  Johns.  334),  Forster  v.  Fuller  (6  Mass.  58),  Hills 
v.  Banister  (8  Cow.  31),  Thatcher  v.  Dismore  (5  Mass.  299), 
Cornthzvaite  v.  First  Nat.  Bank  (57  Ind.  268). 

Being  of  the  opinion,  therefore,  that  the  defendant  is  liable 
upon  the  draft  in  question  in  his  individual  capacity  alone,  the 
question  still  remains  as  to  the  extent  of  such  liability.  He 
was  undoubtedly  competent  to  enter  into  a  personal  contract  in 
reference  to  the  funds  in  his  possession,  and  in  such  case  would 
be  bound  to  perform  according  to  the  tenor  and  legal  effect  of 
the  obligation  assumed  by  him,  and  entitled  to  be  allowed  the 
amount  paid  upon  an  accounting,  as  executor.  Such  instruments 
are  subject  to  the  rules  of  construction  applicable  to  other  con- 
tracts, and  must  be  interpreted  upon  consideration  of  the  language 
used  by  the  parties,  with  a  view  of  arriving  at  their  intention  in 
executing  them.  The  court  below  held  that  the  draft  in  question 
was  payable  only  from  a  particular  fund,  and  was,  therefore, 
non-negotiable,  and  enforceable  only  to  the  extent  of  the  fund 
referred  to. 

Considering  the  question  as  we  are  compelled  to  do  from  the 
language  of  the  instrument  alone,  we  are  unable  to  agree  to  the 
interpretation  thus  put  upon  it.  It  is  not  claimed  that  there  is 
any  distinction  between  the  instrument  in  question  and  an  ordi- 
nary bill  of  exchange  except  that  made  by  the  clause  referring  to 
the  mother's  estate.  Unless  that  clause  deprives  the  paper  of  its 
commercial  character,  the  rights  and  liabilities  of  the  parties 
thereto  must  be  governed  by  the  rules  pertaining  to  negotiable 
securities,  which  would  render  the  defendant  liable  for  the  amount 
named  in  the  draft,  upon  the  theory  that  his  acceptance  was  an 
admission  by  him  of  assets  applicable  to  its  payment. 

The  distinction  between  a  fund  from  which  the  draft  or  order 
is  directed  to  be  paid,  and  one  referred  to  as  the  means  of  reim- 
bursement to  its  drawee,  is  a  material  one  and  cannot  be  disre- 
garded in  the  construction  of  such  instruments.  Thus  it  is  said: 
' ' When  a  reference  is  made  to  a  special_fund  merely  as  a  direc- 
tion  to  the  drawee  how  to  reimburse  himself,  and  the  payment 


SCHMITTLER    V.    SlMON  49 

isjiot  made  to  depend  upon  the  adequacy  of  the  fund,  it  will  not 
vitiate  the  bill."  (Edw.  on  Bills  and  Notes,  §  158.)  See,  also, 
Parsons  on  Merc.  Law,  87;  Chitty  on  Bills,  158.  Dwight,  Com., 
in  Munger  v.  Shannon,  61  N.  Y.  255,  says:  "A  bill  is  an  order 
drawn  by  one  person  on  another  to  pay  a  third  a  certain  sum  of 
money  absolutely  and  at  all  events.  Under  this  definition  the 
order  cannot  be  paid  out  of  a  particular  fund,  but  must  be  drawn 
on  the  general  credit  of  the  drawer,  though  it  is  no  objection, 
when  so  drawn,  that  a  particular  fund  is  specified  from  which 
the  drawee  may  reimburse  himself."  Judge  Rapallo,  in  Brill  v. 
Tuttle  (81  N.  Y.  457),  says:  ''If  a  draft  be  drawn  generally  upon 
the  drawee,  to  be  paid  by  him  in  the  first  instance,  on  the  credit 
of  the  drawer  and  without  regard  to  the  source  from  which  the 
money  used  for  its  payment  is  obtained,  the  designation  by  the 
drawer  of  a  particular  fund,  out  of  which  the  drawee  is  to  sub- 
sequently reimburse  himself  for  such  payment,  or  a  particular 
account  to  which  it  is  to  be  charged,  will  not  convert  the  draft 
into  an  assignment  of  the  fund,  and  the  payee  of  the  draft  can 
have  no  action  thereon  against  the  drawee  unless  he  duly  accepts." 
In  that  case  the  drawee  refused  to  accept  and  the  action  was 
sought  to  be  maintained  upon  the  theory  of  an  equitable  assign- 
ment. It  was  held  under  the  peculiar  circumstances  of  the  case, 
and  the  form  of  the  instrument,  that  it  did  transfer  the  fund. 

It  is  thus  seen  that  the  mere  mention  of  a  fund  in  a  draft, 
does  not  necessarily  deprive  it  of  the  character  of  commercial 
paper,  but  it  must  further  appear  in  order  to  have  that  effect, 
that  it  contains  either  an  express  or  implied  direction  to  pay  it 
therefrom,  and  not  otherwise. 

The  question,  therefore,  to  be  determined  here  is,  whether 
the  fund  in  question  is  referred  to  as  the  measure  of  liability  or 
the  means  of  reimbursement.  While  the  point  is  not  free  from 
doubt,  we  think  a  reasonable  construction  of  the  draft  favors 
the  conclusion  that  it  is  mentioned  only  as  the  source  of  reim- 
bursement. No  express  language  in  it  can  be  pointed  out  as 
requiring  its  payment  from  the  fund  mentioned,  and  none  from 
which  that  requirement  can  be  implied,  except  such  as  exists,  in 
all  drafts  where  a  fund  is  referred  to.  Its  language  is  to  "charge 
the  amount  against  me  and  of  my  mother's  estate"  and  contains 
no  provision  for  delay  until  the  amount  is  realized  from  the  estate, 
or  for  payment  pro  tanto  in  case  the  estate  should  prove  insuffi- 
cient to  pay  the  whole  amount.  There  is  no  language  importing 
a  transfer  of  the  fund  to  the  payee,  and  nothing  from  which  such 
an  intention  can  be  inferred.    The  draft  contains  an  absolute  direc- 


50  General  Requisites  of  the  Contract 

tion  to  pay  a  fixed  sum,  at  a  specified  date,  with  interest.  It 
imports  a  present  indebtedness  of  a  sum  named,  from  the  drawee 
to  the  payee,  and  an  absolute  direction  to  pay  that  sum  at  a  fixed 
date,  subject  to  no  contingency  either  as  to  time  or  amount.  In 
express  language  he  directs  the  amount  when  paid  to  be  charged 
against  him  individually,  and  adds  the  words,  plainly  implying,  as 
we  think,  that  the  fund  for  the  acceptor's  reimbursement  'would 
be  found  in  an  amount  eventually,  or  immediately  payable  to  the 
drawer  from  his  mother's  estate. 

We  think,  also,  that  the  insertion  of  words  expressly  making 
the  paper  negotiable,  was  quite  significant  and  indicated  an  inten- 
tion  on  the  part  of  all  parties,  that  it  should  be  transferable,  and 
partake  of  the  character  of  commercial  paper.  Any  contingency 
inferable  from  the  language  of  the  draft,  making  the  amount  pay- 
able thereon  indefinite  and  uncertain,  would  tend  largely  to  depre- 
ciate its  value  for  such  purpose,  and  defeat  the  intention  with 
which  it  was  apparently  made. 

If  the  language  of  the  paper  could  be  considered  at  all 
ambiguous,  it  was  the  duty  of  the  defendant  to  limit  his  liability 
by  apt  words  of  acceptance  when  it  was  presented  to  him,  but 
as  it  is,  he  has  unqualifiedly  promised  to  pay  a  fixed  and  definite 
sum  at  a  specified  time,  and  we  think,  should  be  held  to  the  con- 
tract which  other  parties  were  authorized  by  his  acceptance  to 
infer  he  intended  to  make.  The  case  of  Tasscy  v.  Church  (4 
Watts  &  Sergeant,  346)  seems  quite  in  point.  The  instrument 
there  read : 

"$55548  Allegheny,  1st  July,  1840. 

"Please  pay  Church,  McVay  &  Gordon  $555.48  and  charge 
the  estate  of  Thomas  C.  Patterson. 

"Adam  Flemming,  Trustee." 

"To  John  Tassey,  Administrator. 

Indorsed:   "Accepted,  John  Tassey,  Administrator." 

Fleming  was  the  trustee  of  Mrs.  Patterson,  who  was  the  heir 
at  law  of  Thomas  C.  Patterson ;  Tassey  was  the  administrator  of 
Patterson's  estate.  It  was  held  that  the  promise  of  the  acceptor 
was  unconditional  and  bound  him  absolutely.  In  Childs  v.  Monins 
(6  Eng.  C.  L.  228),  the  defendants,  as  executors  of  the  estate  of 
Thomas  Taylor,  promised  to  pay  £200  on  demand  with  interest, 
signing  as  executors.  It  was  held  that  they  became  personally 
liable,  and  that  the  plea  of  plcnc  administravit  was  no  defense.  It 
was  further  held  that  the  promise  to  pay  interest  made  the  debt 
that  of  the  administrators  personally.     In  Kelly  v.  Brooklyn   (4 


SCHMITTLER    V.    SlMON  51 

Hill,  263),  the  action  was  upon  an  order  drawn  by  the  mayor 
upon  the  treasurer  of  defendant  in  the  following  words:  "Pay 
Alexander  Lyon  or  order  $1,500  for  award  No.  7,  and  charge  to 
Bedford  Road  Assessment."  It  was  held  that  it  was  a  bill  of 
exchange  and  not  payable  from  a  particular  fund.  For  further 
illustration  of  the  point  under  discussion  we  would  refer  to  Hol- 
listcr  v.  Hopkins  (13  Hun.  210);  Redmond  v.  Adams  (51  Me. 
429;  Luff  v.  Pope  (5  Hill,  413).  The  case  of  Tooker  v.  Arnoux 
(76  N.  Y.  397)  is  referred  to  by  the  respondent  as  sustaining  the 
views  of  the  court  below ;  but  we  are  of  the  opinion  that  it  cannot 
be  so  regarded.  The  order  there  directed  the  drawee  to  pay  a 
certain  sum  out  "of  the  money  to  be  realized  from  the  sale"  of 
certain  houses.  This  order  was  accepted,  and  it  was  held  that  a 
sale  of  the  houses  was  a  condition  precedent,  to  any  liability  on  the 
part  of  the  acceptor.    This  was  the  plain  language  of  the  contract. 

In  all  the  cases  examined  by  us  where  an  order  has  been  held 
to  operate  as  an  equitable  assignment  of  a  fund,  there  were  either 
special  phrases  contained  in  the  instrument,  indicating  an  intent 
to  have  it  so  operate,  or  ambiguous  language  used,  which,  con- 
strued in  the  light  of  surrounding  circumstances,  justified  the 
inference  of  a  limitation  of  liability.  (Parker  v.  Syracuse,  31 
N.  Y.  376;  Alger  v.  Scott,  54  id.  14;  Munger  v.  Shannon,  61  id. 
251  ;  Ehrichs  v.  DeMill,  75  id.  370;  Brill  v.  Tuttle,  supra.)  Here, 
however,  there  is  no  such  language,  and  this  contract  is  to  pay  a 
fixed  amount  at  a  specified  date,  absolutely  and  unconditionally. 

We  are,  therefore  of  the  opinion  that  the  instrument  in  ques- 
tion is_a  bill  of  exchange  and  rendered  the  parties  executing  it 
liable  absolutely  for  the  amount  stated  therein. 

The  judgment  of  the  courts  below  should  be  reversed  and  a 
new  trial  ordered,  with  costs  to  abide  the  event. 

All  concur. 

Judgment  reversed. 


52  General  Requisites  of  the  Contract 


Casco  Nat' I  Bank  v.  Clark  et  al.  (1893),  139  N.  V.  307.      §  22. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  second  judicial  department,  entered  upon  an  order 
made  May  9,  1892,  which  affirmed  a  judgment  in  favor  of  plain- 
tiff entered  upon  a  decision  of  the  court  on  trial  at  Special  Term. 

The  nature  of  the  action  and  the  facts,  so  far  as  material, 
are  stated  in  the  opinion. 

Henry  Daily,  Jr.,  for  appellant. 
Edward  B.  Merrill,  for  respondent. 

Gray,  J.  The  action  is  upon  a  promissory  note,  in  the 
following  form,  viz. : 


o 
U 


o 
o 


Brooklyn,  N.  Y.,  Aug.  2,  1890. 
$7,500.  Three  months  after  date,  we  promise  to 

pay  to  the  order  of  Clark  &  Chaplin  Ice  Company,  seventy- 
five  hundred  dollars  at  Mechanics'  Bank :    value  received. 

John  Clark,  Prest. 
E.  H.  Close,  Treas. 


It  was  delivered  in  payment  for  ice  sold  by  the  payee  com- 
pany to  the  Ridgewood  Ice  Company,  under  a  contract  between 
those  companies,  and  was  discounted  by  the  plaintiff  for  the 
payee,  before  its  maturity.  The  appellants,  Clark  and  Close, 
appearing  as  makers  upon  the  note,  the  one  describing  himself 
as  "Prest."  and  the  other  as  "Treas.,"  were  made  individually 
defendants.  They  defended  on  the  ground  that  they  had  made 
the  note  as  officers  of  the  Ridgewood  Ice  Company  and  did  not 
become  personally  liable  thereby  for  the  debt  represented. 

Where  a  negotiable  promissory  note  has  been  given  for  the 
payment  of  a  debt  contracted  by  a  corporation,  and  the  language^ 
of  the  promise  does  not  disclose  the  corporate  obligation,  and 
the  signatures  to  the  paper  are  in  the  names  of  individuals,  a 
holder,  taking  bona  fide  and  without  notice  of  the  circumstances 
of  its  making,  is  entitled  to  hold  the  note  as  the  personal  under- 
taking of  its  signers,  notwithstanding  they  affix  to  their  names 
the  title  of  an  office..  Such  an  affix  will  be  regarded  as  descrip- 
tive of  the  persons  and  not  of  the  character  of  the  liability.  Unless" 
the  promise'  purports  to  be  by  the  corporation,  it  is  that  of  the 
persons   who   subscribe   to   it ;   and   the   fact   of  adding  to  their 


Casco  National  Bank  v.  Clark  et  al.  53 

names  an  abbreviation  of  some  official  title  has  no  legal  significa- 
tion as  qualifying  their  obligation,  and  imposes  no  obligation  upon 
the  corporation  whose  officers  they  may  be.  This  must  be 
regarded  as  the  long  and  well-settled  rule.  (Byles  on  Bills,  §§  36, 
yj,  71  ;  Pentz  v.  Stanton,  10  Wend.  271 ;  Taft  v.  Brewster,  9 
Johns.  334;  Hills  v.  Bannister,  8  Cow.  31;  Moss  v.  Livingston, 
4  N.  Y.  208;  De  Witt  v.  Walton,  9  id.  571 ;  Bottomley  v.  Fisher, 
I  Hurlst.  &  Colt.  211.)  It  is  founded  in  the  general  principle  that 
in  a  contract  every  material  thing  must  be  definitely  expressed, 
and  not  left  to  conjecture.  Unless  the  language  creates,  or  fairly 
implies,  the  undertaking  of  the  corporation,  if  the  purpose  is 
equivocal,  the  obligation  is  that  of  its  apparent  makers. 

It  was  said  in  Briggs  v.  Partridge,  64  N.  Y.  357,  363,  that 
persons  taking  negotiable  instruments  are  presumed  to  take  them 
on  the  credit  of  the  parties  whose  names  appear  upon  them,  and 
a  person  not  a  party  cannot  be  charged,  upon  proof  that  the 
ostensible  party  signed,  or  indorsed,  as  his  agent.  It  may  be  per- 
fectly true,  if  there  is  proof  that  the  holder  of  negotiable  paper 
was  aware,  when  he  received  it,  of  the  facts  and  circumstances 
connected  with  its  making,  and  knew  that  it  was  intended  and 
delivered  as  a  corporate  obligation  only,  that  the  persons  signing 
it  in  this  manner  could  not  be  held  individually  liable.  Such 
knowledge  might  be  imputable  from  the  language  of  the  paper, 
in  connection  with  other  circumstances ;  as  in  the  case  of  Mott 
v.  Hicks,  1  Cowen,  513,  where  the  note  read,  "the  president  and 
directors  promise  to  pay,"  and  was  subscribed  by  the  defendant 
as  ''president."  The  court  held  that  that  was  sufficient  to  dis- 
tinguish the  case  from  Taft  v.  Brewster,  supra,  and  made  it 
evident  that  no  personal  engagement  was  entered  into  or  intended. 
Much  stress  was  placed  in  that  case  upon  the  proof  that  the  plain- 
tiff was  intimately  acquainted  with  the  transaction  out  of  which 
arose  the  giving  of  the  corporate  obligation. 

In  the  case  of  the  Bank  of  Genesee  v.  Patchin  Bank,  19  N.  Y. 
312,  referred  to  by  the  appellants'  counsel,  the  action  was  against 
the  defendant  to  hold  it  as  the  indorser  of  a  bill  of  exchange, 
drawn  to  the  order  of  "S.  B.  Stokes,  Cas.,"  and  indorsed  in  the 
same  words.  The  plaintiff  bank  was  advised,  at  the  time  of  dis- 
counting the  bill,  by  the  president  of  the  Patchin  Bank,  that 
Stokes  was  its  cashier,  and  that  he  had  been  directed  to  send  it 
in  for  discount,  and  Stokes  forwarded  it  in  an  official  way  to  the 
plaintiff.  It  was  held  that  the  Patchin  Bank  was  liable,  because 
the  agency  of  the  cashier  in  the  matter  was  communicated  to 
the  knowledge  of  the  plaintiff  as  well  as  apparent. 


54  General  Requisites  of  the  Contract 

Incidentally,  it  was  said  that  the  same  strictness  is  not 
required  in  the  execution  of  commercial  paper  as  between  banks, 
that  is,  in  other  respects,  between  Individuals. 

In  the  absence  of  competent  evidence  showing  or  charging 
knowledge  in  the  holder  of  negotiable  paper  as  to  the  character 
of  the  obligation,  the  establised  and  safe  rule  must  be  regarded 
to  be  that  it  is  the  agreement  of  its  ostensible  maker  and  not  of 
some  other  party,  neither  disclosed  by  the  language,  nor  in  the 
manner  of  execution.  In  this  case  the  language  is  "we  promise 
to  pay,"  and  the  signatures  by  the  defendants  Clark  and  Close 
are  perfectly  consistent  with  an  assumption  by  them  of  the  com- 
pany's debt. 

The  appearance  upon  the  margin  of  the  paper  of  the  printed 
name  "Ridgewood  Ice  Company"  was  not  a  fact  carrying  any 
presumption  that  the  note  was,  or  was  intended  to  be,  one  by 
that  company. 

It  was  competent  for  its  officers  to  obligate  themselves  per- 
sonally, for  any  reason  satisfactory  to  themselves,  and,  apparently 
to  the  world,  they  did  so  by  the  language  of  the  note ;  which  the 
mere  use  of  a  blank  form  of  note,  having  upon  its  margin  the 
name  of  their  company,  was  insufficient  to  negative. 

In  order  to  obviate  the  effect  of  the  rule  we  have  discussed, 
the  appellants  proved  that  Winslow,  a  director  of  the  payee  com- 
pany, was  also  a  director  in  the  plaintiff  bank,  at  the  time  when 
the  note  was  discounted,  and  it  was  argued  that  the  knowledge 
chargeable  to  him,  as  director  of  the  former  company,  was 
imputable  to  the  plaintiff.  But  that  fact  is  insufficient  to  charge 
the  plaintiff  with  knowledge  of  the  character  of  the  obligation. 
He  in  no  sense  represented,  or  acted  for  the  bank  in  the  transac- 
tion, and  whatever  his  knowledge  respecting  the  note,  it  will  not 
be  imputable  to  the  bank.  (National  Bank  v.  Norton,  i  Hill,  572, 
578;  Mayor,  etc.,  v.  Tenth  National  Bank,  in  N.  Y.  446,  457; 
Farmers',  etc.,  Bank  v.  Payne,  25  Conn.  444.)  He  was  but  one 
of  the  plaintiffs'  directors,  who  could  only  act  as  a  board. 
(National  Bank  v.  Norton,  supra.)  If  he  knew  the  fact  that  these 
were  not  individual  but  corporate  notes,  we  cannot  presume  that 
he  communicated  that  knowledge  to  the  board.  An  officer's 
knowledge,  derived  as  an  individual,  and  not  while  acting 
officially  for  the  bank,  cannot  operate  to  the  prejudice  of  the 
latter.  (Bank  of  U.  S.  v.  Davis,  2  Hill,  451.)  The  knowledge  with 
which  the  bank  as  his  principal  would  be  deemed  chargeable,  so 
as  to  affect  it,  would  be  where,  as  one  of  the  board  of  directors 
and   participating   in   the   discount   of   the   paper,   he   had   acted 


Casco  National  Bank  v.  Clark  et  al.  55 

affirmatively,  or  fraudulently,  with  respect  to  it;  as  in  the  case 
of  Bank  v.  Dazns  (supra),  by  a  fraudulent  perversion  of  the  bills 
from  the  object  for  which  drawn ;  or  as  in  H olden  v.  New  York 
&  Erie  Bank  (72  N.  Y.  286),  where  the  president  of  the  bank,  who 
represented  it  in  all  the  transactions,  was  engaged  in  a  fraudulent 
scheme  of  conversion.  It  was  said  in  the  latter  case  that  the 
knowledge  of  the  president,  as  an  individual  or  as  an  executor, 
was  not  imputable  to  the  bank  merely  because  he  was  the  pres- 
ident, but  because,  when  it  acted  through  him  as  president,  in 
any  transaction  where  that  knowledge  was  material  and  appli- 
cable, it  acted  through  an  agent. 

The  rule  may  be  stated,  generally,  to  be  that  where  a  direc- 
tor  or  an  officer  has  knowledge  of  material  facts  respecting  a 
proposed  transaction,  which  his  relations  to  it,  as  representing 
the  bank,  have  given  him,  then,  as  it  becomes  his  official  duty  to 
communicate  that  knowledge  to  the  bank,  he  will  be  presumed  1 
to  have  done  so,  and  his  knowledge  will  then  be  imputed  to  the) 
bank.  But  no  such  duty  can  be  deemed  to  have  existed  in  this 
case,  where  the  appellants  have  made  and  delivered  a  promissory 
note,  purporting  to  be  their  individual  promise.  If  one  of  the 
plaintiff's  officers  did  have  knowledge,  whether  individually  or 
as  a  director  of  the  Clark  &  Chaplin  Company  is  not  material, 
that  the  paper  was  made  and  intended  as  a  corporate  note,  his 
failure  to  so  state  to  the  bank  could  not  prejudice  it.  It  was  in 
no  sense  incumbent  upon  him,  assuming  that  he  actually  partici- 
pated in  the  discount  (a  fact  not  shown),  to  explain  that  the  note 
was  the  obligation  of  the  Ridgewood  Company  and  not  of  the 
persons  who  appeared  as  its  makers.  He  was  under  no  duty  to 
these  persons  to  explain  their  acts,  and  the  law  would  not  imply 
any.  At  most,  it  would  be  merely  a  case  of  knowledge,  acquired 
by  a  director,  of  facts  not  material  to  the  transaction  of  discount 
by  the  plaintiff,  and  which  he  was  under  no  obligation  to  com- 
municate. No  other  questions  require  discussion,  and  the  judg- 
ment rendered  below  should  be  affirmed,  with  costs. 
All  concur. 

Judgment  affirmed. 


56  General  Requisites  of  the  Contract 


Miinger  v.  Shannon  (1874),  61  N.  Y.  251.        §  5 — 1. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  fourth  judicial  department,  affirming  a  judgment 
and  order  of  Special  Term,  granted  upon  summary  application 
for  judgment  against  defendant. 

The  complaint  alleged  in  substance  that  Livonia  A.  Gulick, 
on  the  31st  day  of  December,  1868,  at  Starkey,  Yates  county, 
made  her  promissory  note,  by  which,  for  value  received,  she 
promised  to  pay  to  her  own  order  $2,000,  three  months  after 
date,  at  the  Central  National  Bank  in  the  city  of  New  York. 
There  were  additional  allegations  to  the  effect  that  the  note  was 
indorsed  by  Nathan  Randall  and  Herrick  Munger,  and  thereupon 
discounted  and  held  by  Wilkin  &  Hair,  bankers,  at  Dundee,  in 
the  same  county.  That  on  the  26th  day  of  January,  1869,  and 
before  the  note  came  due,  L.  A.  Gulick,  by  her  agent,  made  her 
bill  of  exchange,  addressed  to  the  defendant,  as  follows :  "Mr  A 
Harrison  Shannon.  You  will  please"  pay  to  Messrs.  Wilkin  & 
Hair  the  amount  of  a  note  for  $2,000,  dated  December  31st,  1868,  Q 
and  deduct  the  same  from  my  share  of  the  profits  of  our  partner- 
ship business  in  malting.  Note  made  by  myself  as  principal 
to  the  order  of  myself,  and  indorsed  by  Nathan  Randall  and  J 
Herrick  Munger.  L.  A.  Gulick,  per  E.  Gulick.  January  26,  1869.'-' 
That  said  bill  or  order  was  thereupon  duly  transferred  and  deliv- 
ered to  the  said  Wilkin  &  Hair ;  and  afterward,  on  the  6th  day 
of  February,  1869,  the  defendant  duly  accepted  said  bill  or  order 
by  writing  upon  the  back  of  it  these  words :  "Accepted  February 
6,  1869.  H.  Shannon ;"  and  therefore  became  liable  upon  said 
bill  or  order  as  accepted.  It  was  further  alleged  that  before  the 
commencement  of  the  action  the  note  and  bill,  or  order,  were 
transferred  to  the  plaintiff  for  a  valuable  consideration ;  that  the 
note  was  due  and  payable  before  action  brought ;  and  that  pay- 
ment of  it,  as  well  as  of  the  bill,  etc.,  was  demanded  of  the  defend 
ant,  but  that  no  part  of  the  same,  or  either  of  them,  had  ever  been 
paid ;  and  that  there  was  due  to  the  plaintiff  thereon  $2,000,  with 
interest  from  April  3,  1869. 

The  defendant,  in  his  answer,  alleged  that,  after  the  accept- 
ance of  the  order  mentioned  in  the  complaint,  and  before  the  note 
matured,  L.  A.  Gulick  countermanded  the  order,  and  directed  the 
defendant  not  to  pay  it ;  and  that  before  such  maturity  she 
requested  the  holders  not  to  call  upon  the  defendants  to  pay ;  and 
that  she  then  made  arrangements  to  take  up  and  pay  the  note  at 


w\ 


Munger  v.  Shannon  57 

its  maturity;  and  that  said  note  was  either  paid  by  the  maker  at 
maturity  or  renewed  by  another  note  for  the  same  amount,  with 
the  same  indorsers;  and  that  the  note  was  thereby  paid  by  the 
maker. 

David  B.  Prosser,  for  the  appellant 
E.  G.  Lapham,  for  the  respondent. 

Dwight,  C.  It  will  be  necessary  to  consider  whether  the 
instrument  on  which  the  action  is  brought  is  a  bill  of  exchange. 
A  bill  is  an  order  drawn  by  one  person  on  another  to  pay  a  third 
a  certain  sum  of  money,  absolutely  and  at  all  events.  Under  this 
definition  the  order  cannot  be  paid  out  of  a  particular  fund,  but 
must  be  drawn  on  the  general  credit  of  the  drawer,  though  it  is 
no  objection,  when  so  drawn,  that  a  particular  fund  is  specified 
from  which  the  drawee  may  reimburse  himself.  The  difficulty  is 
in  determining  whether  the  bill  is  to  be  paid  out  of  the  fund  or 
not.  The  cases  are  very  numerous,  and  do  not  appear  to  proceed 
on  any  very  well  defined  distinction.  The  true  test  would  seem 
to  be  whether  the  drawee  is  confined  to  the  parHmlar  fund,  nr 
whether,  though  a  specified  fund  is  mentioned,  he  would  have 
the  power  to  charge  the  bill  up  to  the  general  account  of  the 
drawer,  if  the  designated  fund  should  turn  out  to  be  insuffi- 
cient.  In  the  final  analysis  of  each  case,  it  must  appear  that  the 
alleged  bill  of  exchange  is  drawn  on  the  general  credit  of  the 
drawer.  For  example,  if  he  were  an  accommodation  drawer,  it 
must  be  of  such  a  nature  that  the  amount  paid  under  it  could  be 
charged  against  him  as  a  debt,  or  if  the  transaction  were  business 
paper,  it  must  be  of  such  a  character  as  to  be  entered  as  a  debit, 
on  the  debtor  side  of  the  account. 

The  remarks  in  Dawkes  v.  De  Lorane  (3  Wils.  207),  are 
worthy  of  approval :  "The  instrument  or  writing  which  consti- 
tutes a  good  bill  of  exchange  is  not  confined  to  any  certain  form, 
or  set  of  words,  yet  it  must  have  some  essential  qualities,  without 
which  it  is  no  bill  of  exchange ;  it  must  carry  with  it  a  personal 
and  certain  credit  given  to  the  drawer,  not  confined  to  credit  upon 
any  thing  or  fund;  it  is  upon  the  credit  of  a  person's  hand,  as  on 
the  hand  of  the  drawer,  the  indorser,  or  the  person  who  nego- 
tiates it ;  he  to  whom  such  bill  is  made  payable,  or  indorsed,  takes 
it  upon  no  particular  event  or  contingency,  except  the  failure  of 
the  general  personal  credit  of  the  persons  drawing  or  negotiating 
the  same."  Whatever  is  said  of  a  bill  here  is  equally  applicable 
to  a  promissory  note.  Under  this  rule,  an  order  drawn  payable 
"out  of  one's  growing  subsistence"  is  not  a  good  bill  (Jossclyn  v. 


58  General  Requisites  of  the  Contract 

Lacier,  10  Mod.  294)  ;  nor  one  payable  "out  of  rents"  (Jenney  v. 
Herle,  2  Lord  Raym.   1361);  nor  out  of  money  in  the  hands 

of ;  ''nor  out  of  a  certain  payment  when  due."     (Haydock 

v.  Lynch,  2  Lord  Raym.  1563.)  On  the  other  hand,  the  statement 
of  a  particular  fund  in  a  bill  of  exchange  does  not  vitiate  it.  if  it 
be  inserted  merely  as  a_directjon_to  the  drawee  how  to  reimburse 
himself.  Thus,  an  order  requesting  the  defendant  to  pay  to  the 
plaintiff,  or  order,  £9  10s.,  "as  my  quarterly  half-pay,  to  be  due 
from  the  twenty-fourth  of  June  to  twenty-seventh  of  September 
next,  by  advance,"  was  held  to  be  a  bill  of  exchange.  The  court 
said :  "The  mention  of  the  half-pay  is  only  by  way  of  direction 
how  he  shall  reimburse  himself,  but  the  money  is  still  to  be 
advanced  on  the  credit  of  the  person."  (Macleod  v.  Snee,  2" 
Strange,  762.)  The  direction  in  the  case  at  bar  is  equivalent  to 
an  order  to  pay  out  of  the  profits.  It  is  to  deduct  the  amount  paid 
from  the  drawer's  share  of  "the  profits."  This  is  equivalent  to  a 
direction  to  subtract  the  amount  from  a  particular  fund.  If  the 
language  had  been  "please  pay  Wilkes  and  Hare  $2,000  out  of 
my  share  of  the  profits  of  the  partnership,"  it  would  have  been  a 
clear  case  of  assignment  and  not  a  bill  of  exchange.  The  actual 
direction  was  in  substance  the  same.  {Cook  v.  Satterlce,  6  Cowen, 
108),  is  in  point.  The  words  there  were:  "Ninety  days  after  date 
pay  plaintiff  or  bearer  $400,  and  take  up  their  note  given  to  Wm. 
and  H.  B.  Cook  for  that  amount,  dated  April  19th,  1825."  On 
demurrer  it  was  held  that  this  was  not  a  bill  of  exchange.  The 
words  "pay  and  take  up,"  &c,  were  held  to  be  equivalent  to  pay 
on  taking  up.  Applying  the  same  construction  to  the  present 
case,  "pay  and  deduct"  would  be  equivalent  to  "pay  on  deduct- 
ing," or  "pay  by  deducting."  Either  construction  must  take  away 
negotiability.  Cook  v.  Satterlee  is  not  at  all  weakened  by  Leonard 
v.  Mason  (1  Wend.  522).  The  opinion  is  given  by  the  same 
judge  in  both  cases.  The  language  in  Leonard  v.  Mason  was, 
"pay  a  specified  note,  and  hold  it  against  me  in  our  settlement." 
The  court  said  the  note  was  thus  referred  to  merely  to  ascertain 
the  amount.  The  language  was  equivalent  to  the  words  "charge 
to  my  account."  In  Leonard  v.  Mason  there  was  no  independent 
act  to  be  performed  other  than  paying  the  note.  In  Cook  v.  Sat- 
terlee, and  in  the  case  at  bar,  there  are  two  wholly  distinct  acts 
to  be  done,  besides  payment ;  in  the  one  to  take  up  a  note,  and  in 
the  other  to  deduct  from  profits  of  a  firm.  The  order,  accord- 
ingly, is  not  drawn  on  the  general  credit  of  the  drawer.  (Low- 
ery  v.  Steward,  25  N.  Y.  239.)  The  order  there  was:  "Please 
pay  to  the  order  of  Archibald  H.  Lowery  the  sum  of  $500  on 


Siegel,  Cooper  Co.  v.  Chicago  Trust  Savings  Bank         59 

account  of  twenty-four  bales  cotton  shipped  to  you  as  per  bill  of 
lading  by  steamer  Colorado,  inclosed  to  you  in  letter."  It  was 
held  that  this  was  not  a  bill  of  exchange,  requiring  acceptance 
to  bind  the  drawers,  but  a  specific  draft  or  order  upon  a  partic- 
ular fund.  (Pp.  242-244;  Morton  v.  Naylor,  1  Hill,  583;  Parker 
v.  City  of  Syracuse,  31  N.  Y.  376.)  The  present  order,  it  should 
be  observed,  is  payable  out  of  an  uncertain  fund,  from  profits, 
and  of  course,  none  may  he  realized.  This  fact,  of  itself,  deprives 
it  of  an  element  essential  in  a  bill  of  exchange,  which  is,  that  it 
be  payable  absolutely,  and  not  upon  a  contingency.  (Cook  v. 
Satterlee,  6  Cow.  108;  Wordcn  v.  Dodge,  4  Denio,  159 ;  1  Parsons 
on  Notes  and  Bills,  42.) 

I  think  that  the  true  construction  of  the  present  order  is, 
that  it  was  an  equitable  assignment  of  a  certain  amount  of  the 
profits  of  the  business  of  L.  A.  Gulick. 

The  judgment  of  the  Supreme  Court  should  be  reversed. 

All  concur;  except  Earl,  C,  dissenting.  Lott,  Ch.C,  con- 
curs on  the  ground  that  the  answer  should  not  have  been  held 
frivolous. 

Judgment  reversed  and  motion  denied. 


statement  of  the  transaction  which  gave  rise  to  instru- 
ment. §  5 — 2. 

Siegel,  Cooper  &  Co.  v.  Chicago  Trust  &  Savings  Bank  (1890), 
IS  1  III.  569,  19  Am.  St.  Rep.  5/. 

Mr.  John  C.  Richberg,  for  the  appellants. 

Messrs.  Floiver,  Smith  and  Musgrave,  for  the  appellee. 

Mr.  Chief  Justice  Shope  delivered  the  opinion  of  the  court : 

This  was  an  action  of  assumpsit,  by  appellee,  against  appel- 
lants, upon  the  following  instrument : 

"$300.  Chicago,  March  5,  1887. 

"On  July  1,  1887,  we  promise  to  pay  D.  Dalziel,  or  order,  the 
sum  of  three  hundred  dollars,  for  the  privilege  of  one  framed 

advertising  sign,  size  x  inches,  one  end  of 

each  of  one  hundred  and  fifty-nine  street  cars  of  the  North  Chi- 
cago City  Railway  Co.,  for  a  term  of  three  months,  from  May  15, 
1887.  Siegel,  Cooper  &  Co." 

— which  was  indorsed  by  Dalziel,  the  payee,  to  appellee,  for  value, 
on  the  day  of  its  execution. 


60  General  Requisites  of  the  Contract 

The  first  question  presented  is,  is  this  instrument  negotiable? 
— and  this  question  has  been  answered  affirmatively  by  the  Circuit 
and  Appellate  courts.  The  Appellate  Court  having  affirmed  the 
judgment  in  favor  of  the  plaintiff,  the  case  is  brought  here  by 
appeal,  upon  certificate  of  importance  granted  by  that  court. 

It  appears,  that  before  the  time  when  the  privilege  of  adver- 
tising was  to  commence,  Dalziel  forfeited  any  right  he  may  have 
acquired  to  use  the  cars  in  the  manner  indicated,  and  the  privilege 
specified  never  was  furnished  appellants ;  and  it  is  insisted  that  the 
instrument  is  a  simple  contract,  only,  and  that  therefore  the  same 
defense — failure  of  consideration — is  available  against  the  indor- 
see of  the  paper  for  value,  and  before  due,  as  might  be  interposed 
against  such  paper  in  the  hands  of  the  payee.  It  is  also  insisted, 
that  the  instrument  shows,  on  its  face,  that  payment  depended 
upon  a  condition  precedent  to  be  performed  by  the  payee,  and 
therefore  the  indorsee  took  it  with  notice,  and  by  the  failure  of  the 
payee  to  perform  the  condition,  no  right  of  recovery  exists  in  the 
indorsee.  It  is  not  contended  that  the  indorsee  had  any  other 
notice  than  that  contained  in  the  instrument  itself,  and  it  is  appar- 
ent that  at  the  time  of  its  indorsement,  which  was  the  day  of  its 
execution,  no  right  to  the  consideration  had  accrued  to  the  makers. 
It  is  a  promise  to  pay  a  certain  sum  of  money  at  a  day  certain,  for 
a  consideration  thereafter  to  be  rendered,  and  depends  for  its 
validity  upon  the  implied  promise  of  the  payee  to  furnish  the  con- 
sideration at  the  time  and  in  the  manner  stipulated, — that  is,  it  is 
a  promise  to  pay  a  sum  certain  on  a  particular  day,  in  considera- 
tion of  the  promise  of  the  payee  to  do  and  perform  on  his  part.  A 
promise  is  a  valuable  consideration  for  a  promise. 

But  the  question  remains,  whether  the  statement  or  the 
recital  of  the  consideration  on  the  face  of  the  instrument  impairs 
its  negotiability,  and,  in  this  instance,  amounts  to  a  condition  pre- 
cedent. The  mere  fact  that  the  consideration  for  which  a  note  is 
given  is  recited  in  it,  although  it  may  appear  thereby  that  it  was 
given  for  or  in  consider^on_o^n_ex^ecutory  contract  or  promise 
on  the  part  of  the  payee,  will  not  destroy  its  negotiability,  unless 
it  appears,  through  the  recital,  that  it  qualifies  the  promise  to  pay, 
and  renders  it  conditional  or  uncertain,  either  as  to  the  time  of 
payment  or  the  sum  to  be  paid"  Daniel  on  Neg.  Inst.  sees.  790- 
797;  Davis  v.  McCready,  17  N.  Y.  320;  State  Nat.  Bank  v. 
Casson,  39  La.  Ann.  865;  Goodloe  v.  Taylor,  13  N.  C.  458; 
Stevens  v.  Blunt,  7  Mass.  240. 

In  State  Nat.  Bank  v.  Casson,  supra,  it  is  said:  "Plaintiff 
received  the  note  before  maturity,  and  before  a  failure  of  the 


Siegel,  Cooper  Co.  v.  Chicago  Trust  Savings  Bank        61 

consideration.  Even  if  it  were  known  to  him  that  the  considera- 
tion was  future  and  contingent,  and  that  there  might  be  offsets 
against  it,  this  would  not  make  him  liable  to  the  equities  between 
the  defendant  and  the  payee.  It  can  not  affect  the  negotiability 
of  a  note  that  its  consideration  is  to  be  hereafter  realized,  or  that, 
from  contingency,  it  may  never  be  enjoyed." 

The  most  that  can  be  said  of  a  recital  in  the  instrument  itself, 
of  the  consideration  upon  which  it  rests,  is,  that  the  indorsee, 
taking  it  before  maturity,  is  chargeable  with  notice  of  the  recital. 
Such  recital,  however,  is  not  sufficient,  of  itself,  to  advise  him  that 
there  was,  or  would  necessarily  be,  a  failure  of  consideration,  but 
if,  at  the  time  of  the  indorsement,  the  consideration  has  in  fact 
failed,  the  recital  might  be  sufficient  to  put  him  upon  inquiry,  and, 
in  connection  with  other  facts,  amount  to  notice.  (Henneberry  v. 
Morse,  56  111.  394.)  The  case  at  bar  does  not,  however,  fall  within 
the  rule  just  stated,  for  the  assignment  was  made  the  same  day 
the  note  was  made,  and  by  the  terms  of  the  recital  it  was  appar- 
ent the  payee  was  required  to  do  no  act  till  the  15th  of  May 
following, — an  interval  of  seventy  days. 

There  is  a  distinction,  clearly  recognized  in  the  authorities, 
between  an  instrument  payable  at  a  particular  da  v.  and  one 
payable~upon  the  happening  of  some  event ;  and  the  rule  is,  that 
where  the  parties  insert  a  specificdate  of  payment,  the  instrument 
is  then  payable  at  all  events. — and  this  although,  in  the  same 
instrument,  an  uncertain  and  different  time  of  payment  may  be 
mentioned,  as,  that  it  shall  be  payable  upon  a  particular  day,  or 
upon  the  completion  of  a  house,  or  the  performance  of  other 
contracts,  and  the  like.  (McCarthy  v.  Howell,  24  111.  341,  and 
authorities  supra.)  But  the  doctrine  of  this  and  kindred  cases, 
where  there  are  both  a  certain  day  of  payment  and  one  more 
or  less  contingent,  need  not  be  here  invoked,  for  the  time  of 
payment  in  the  instrument  under  consideration  is  not  made  to 
depend  upon  the  happening  or  not  happening  of  any  event,  but 
is  specific  and  certain,  and  must  occur  by  the  efflux  of  time,  alone. 

If,  therefore,  it  be  conceded,  as  it  must,  that  a  condition 
inserted  in  a  promissory  note,  postponing  the  day  of  payment 
until  the  happening  of  some  uncertain  or  contingent  event,  will 
destroy  its  negotiability  and  render  the  instrument  a  mere  agree- 
ment, yet  under  the  authorities,  if  by  the  instrument  the  maker 
promises  to  pay  a  sum  certain  at  a  day  certain  to  a  certain  person 
or  his  order,  such  instrument  must  be  regarded  as  negotiable, 
although  it  also  contains  a  recital  of  the  consideration  upon  which 
it  is  based,  and  although  it  further  appear  that  such  consideration, 
if  executory,  may  not  have  been  performed.     Here,  the  money 


62  General  Requisites  ok  the  Contract 

was  payable,  absolutely,  on  the  first  day  of  July,  1887, — a  time 
when  the  contract  for  the  advertising  could  not  have  been  com- 
pleted. If  the  instrument  had  remained  the  property  of  the  payee, 
and  upon  its  maturity  and  performance  to  that  time,  suit  had  been 
brought,  it  is  clear  that  no  plea  of  partial  failure  of  consideration 
could  have  been  sustained,  for  the  reason  that  the  entire  term  had 
not  then  expired.  No  analysis  of  the  instrument  itself  is  neces- 
sary. The  most_careful  examination  of  it  will  fail  to  disclose  a 
condition~p7ecedent  to  the  payment  of~tne  money  at  the  time  stip- 
ulated.  Nor  is  there  anything  in  the  recitafof  the  consideration 
to  put  the  indorsee  upon  inquiry  at  the  time  the  indorsement  was 
made.  Indeed,  it  is  clear  that  at  that  time  no  inquiry  would  have 
led  to  notice  that  Dalziel  would  fail  to  comply  with  his  contract 
on  the  15th  of  May  thereafter,  when  the  term  was  to  commence. 
All  that  the  recitals  would  give  notice  of  was,  that  the  note  was 
given  in  consideration  of  an  agreement  on  the  part  of  the  payee 
that  the  privilege  of  advertisement  named  should  be  enjoyed  by 
the  makers  for  three  months,  from  May  15,  1887.  Giving  to 
the  language  employed  its  broadest  possible  meaning,  it  can  not 
be  construed  as  notice  to  the  indorsee  of  the  future  breach  of  the 
contract  by  Dalziel.  The  presumption  of  law  would  be,  that  the 
contract  would  be  carried  out  in  good  faith,  and  the  consideration 
performed  as  stipulated.  The  makers  had  put  their  promissory 
note  into  the  hands  of  Dalziel  upon  an  expressed  consideration 
which  they  were  thereafter  to  receive,  and  for  the  performance 
of  which  they  had  seen  fit  to  rely  upon  the  undertaking  of  Dalziel, 
and  we  are  aware  of  no  rule  by  which  they  can  hold  this  indorsee 
for  value,  before  due  and  before  the  time  of  performance  was  to 
begin,  chargeable  with  notice  that  the  promise  upon  which  the 
makers  relied  would  not  be  kept  and  performed.  Wade  on  Notice, 
sec.  94  a;  Loomis  v.  Maury,  15  N.  Y.  312;  Davis  v.  McCready, 
supra. 

It  is  also  contended  that  the  court  erred  in  giving  the  eighth 
instruction  in  behalf  of  appellee,  as  to  the  meaning  of  the  words 
"good  faith."  Without  pausing  to  discuss  the  instruction,  we 
think  it  clear  that  appellants  were  not  prejudiced  thereby,  and  that 
no  inference  unfavorable  or  prejudicial  to  them  could  have  been 
drawn  therefrom  by  the  jury.  While,  therefore,  the  instruction 
may  be  regarded  as  inaccurate,  it  worked  no  injury,  and  appellants 
can  not  complain.    See  Comstock  ct  al.  v.  Hannah,  76  111.  530. 

Other  minor  objections  are  urged,  which,  it  is  sufficient  to 
say,  we  have  examined  with  care,  but  find  no  prejudicial  error. 

The  judgment  of  the  Appellate  Court  will  be  affirmed. 

Judgment  affirmed. 


Dodge  v.  Emerson  63 

THE  SUM   MUST  BE  CERTAIN.  §  3 — 2. 

Dodge  v.  Emerson  (1852),  34  Me.  96. 

Assumpsit,  by  the  indorsee  against  the  makers  of  a  note  pay- 
able to  the  Protection  Insurance  Company  or  order,  for  "$271.25, 
with  such  additional  premium  as  may  arise  on  policy  No.  50, 
issued  at  the  Calais  agency." 

The  opinion  of  the  court,  Shepley,  C.J.,  Wells,  Rice, 
Hathaway  and  Appleton,  J.J.,  was  drawn  up  by 

Appleton,  J. — No  principle  of  law  is  more  fully  established 
by  authority  and  the  universal  concurrence  of  the  commercial 
world,  than  that  to  make  a  wri^e"  prnrpjse  a  valid  promissory 
note,  it  must  be  fqr_a_fixed  and  certain,  and  tint  for  a  variable 
amount.  In  Franceit  is  so  determined  by  the  provisions  of  the 
Code  Napoleon.  It  is  the  recognized  mercantile  law  of  con- 
tinental Europe.  In  England  and  in  this  country,  it  has  received 
the  sanction  of  repeated  and  well  considered  adjudications.  Story 
on  Promissory  Notes,  §  20.  Without  this  essential  requisite,  a' 
written  promise,  though  in  terms  payable  to  order,  is_  to  be 
regarded  as  a  simple  contract  and  not  negotiable. 

The  defendants  in  this  case  have  promised  to  pay  two  several 
sums ;  one  certain  and  definite,  the  other  uncertain  and  contingent. 
The  defendants'  liability  being  for  both  these  sums,  is  obviously 
for  an  unascertained  and  indefinite  amount. 

It  is  insisted  in  argument,  that  the  plaintiff  may  abandon  all 
claim  for  the  additional  premium,  which  is  uncertain,  and  proceed 
only  for  the  certain  sum  expressed  in  the  contract.  Undoubtedly 
he  may  take  judgment  for  any  sum  less  than  the  amount  due. 
and  in  that  mode  abandon  a  portion  of  his  legal  claims,  but  that 
still  leaves  the  contract  in  its  original  state,  and  can  in  no  way 
affect  its  legal  construction.  He  could  not  erase  the  clause  relating 
to  the  additional  premium,  without  thereby  making  such  an  alter- 
ation in  the  instrument  declared  on,  as  would  discharge  the 
defendants. 

In  Smith  v.  Nightingale,  2  Stark.  R.  375,  the  promise  was 
to  pay  the  payee  sixty-five  pounds  and  all  other  sums  that  may  be 
due  him,  and  it  was  claimed  for  the  plaintiff,  to  whom  the  interest 
in  the  contract  had  passed  by  indorsement,  that  he  might  disre- 
gard the  latter  clause  and  recover  on  the  certain  sum  set  forth  in 
his  contract  as  indorsee,  but  the  Court  decided  otherwise.  Davis 
v.  Wilkinson.  10  Adol.  &  El.  98. 


64  General  Requisites  of  the  Contract 

The  inquiry  is  made  by  the  counsel  for  the  plaintiff,  whether 
the  clause  providing  for  the  payment  of  an  additional  sum,  intro- 
duced after  the  promise  to  pay  the  sum  fixed  and  certain,  controls 
that  sum  so  as  to  make  it  in  any  event  uncertain.  The  amount 
due  to  the  plaintiff  is  uncertain.  Whether  the  contract  is  to  be 
regarded  as  a  promise  to  pay  one  sum,  which  shall  be  the  aggre- 
gate composed  of  a  certain  and  of  an  uncertain  sum,  the  amount 
of  which  is  to  be  ascertained  at  some  subsequent  time,  or  as  a 
promise  to  pay  two  sums,  one  fixed  and  the  other  uncertain,  is 
perfectly  immaterial.  In  either  case  there  is  no  precise  and  ascer- 1 
tained  amount  due  by  the  contract,  and  it  cannot  be  regarded  as 
a  promissory  note.  If  it  was  not  in  its  origin,  it  cannot  be  made 
one  by  any  abandonment,  which  the  plaintiff  may  deem  it  advisable 
to  make  of  any  portion  of  the  sum  due  him.  The  contract  declared 
on  not  being  in  its  character  negotiable,  the  action  cannot  be  main- 
tained by  the  present  plaintiff.  Plaintiff  nonsuit. 


MAY  BE  PAYABLE  BY  STATED  INSTALMENTS.  §  4 — 3. 

Cook  v.  Horn  (Q.  B.)  {1873),  29  L.  T.  (N.  S.)  369. 

This  was  an  action  upon  a  promissory  note,  tried  before 
Honyman,  J.,  at  the  York  Summer  Assizes.  A  verdict  of  175/. 
5-y.  ioc?.  was  found  for  the  plaintiff,  leave  being  reserved  to  the 
defendant  to  move  to  enter  a  verdict  for  him,  on  the  ground  that 
the  note  was  not  good. 

The  form  of  the  note  was  as  follows : 

£170.  25th  April,  1872. 

We  promise  to  pay  to  Messrs.  M.  H.  Cook  and  Co.  170/., 
with  interest  thereon  at  the  rate  of  5/.  per  cent,  per  annum,  as 
follows:  the  first  payment,  to  wit,  40/.,  or  more,  to  be  made  on 
the  1st  Feb.  1873,  and  5/.  on  the  first  day  of  each  month  following 
until  this  note  and  interest  shall  be  fully  satisfied.  And  in  case 
default  shall  be  made  in  payment  of  any  of  the  said  instalments, 
the  full  amount  then  remaining  due  in  respect  of  the  said  note 
and  interest  shall  be  forthwith  payable. 

The  note  was  signed  by  the  defendant  and  one  John  Horn, 
since  deceased. 

J.  W.  Mellor,  on  behalf  of  the  defendant,  moved  in  pursuance 
of  the  leave  reserved. — This  instrument  cannot  be  considered  a 


Cook  v.  Horn  65 

promissory  note,  for  it  is  not  made  for  the  payment  of  a  certain 
sum  at  a  particular  day.  If  the  defendant  paid  more  than  40/.  on 
the  1st  Feb.,  which  would  be  in  accordance  with  the  terms  of  his 
promise,  there  could  be  no  certainty  as  to  his  liability  for  the 
remaining  instalments  concerning  either  the  amount  or  the  day. 
In  Smith  v.  Nightingale,  2  Starkie,  375,  the  promise  was  to  pay 
011  a  particular  day  a  certain  sum,  with  interest,  "and  also  all 
other  sums  which  may  be  due  to  him."  Lord  Ellenborough  was 
of  opinion  (p.  376)  "that  the  instrument  was  too  indefinite  to  be 
considered  as  a  promissory  note ;  it  contained  a  promise  to  pay 
interest  for  a  sum  not  specified,  and  not  otherwise  ascertained 
than  by  reference  to  the  defendant's  books,  and  that  since  the 
whole  constituted  one  entire  promise,  it  could  not  be  divided  into 
parts.  He  also  held,  that  since  the  instrument  contained  an  agree- 
ment to  pay  the  money,  it  could  not  be  receivable  in  evidence  as 
an  acknowledgment  without  a  stamp."  Similarly,  this  note  con- 
tains a  promise  to  pay  interest  for  a  sum  the  amount  of  which, 
after  the  1st  Feb.,  is  not  specified.  Moreover,  the  day  of  final 
payment  depends  upon  the  contingency  of  the  defendant's  first 
payment ;  and  it  has  been  held  that  a  promissory  note  cannot  be 
so  indefinite,  e.  g.,  to  pay  so  many  days  after  marriage.  (Beardsley 
v.  Baldunn,  2  Stra.  1151.)  [Blackburn,  J. — That  is  only  when  the 
event  may  never  happen  ;  if  the  period  of  payment  be  inevitable, 
as  upon  a  death,  it  need  not  be  definite.]  Here  there  is  no  state- 
ment of  the  sum  upon  which  interest  is  to  be  paid. 

Blackburn,  J. — I  do  not  think  there  should  be  any  rule  in 
this  case.  The  objection  to  the  note  is,  that  if  the  first  payment 
were  more  than  40/.,  which  the  note  provides  it  might  be,  the 
subsequent  instalments  and  the  final  time  for  payment  would  be 
indefinite.  The_amount  of  the  note,  however,  is  rerrnin,  and  anv 
variation  in  the  time  will  depend  only  upon  the  defendant.  No 
case  has  been  cited  which  is  an  authority  against  this  note ;  and 
by  analogy  with  other  objections,  this  one,  as  it  seems  to  me, 
ought  not  to  prevail.  I  do  not  see  why  a  stipulation  which  enables"} 
the  maker  of  a  note  to  reduce  his  liability  for  interest,  should  T 
prevent  the  instrument  containing  it  from  being  a  promissory 
note. 

Quain  and  Archibald,  JJ.,  concurred. 

Rule  refused. 


66  General  Requisites  of  the  Contract 


INSTRUMENT  PAYABLE  ill  EXCHANGE  IS  NOT  NEGOTIABLE.      §  4 4- 

First  Nat.  Bank  v.  Slette  (189/),  67  Minn.  425,  64  Am.  St.  Rep. 

429. 

Carmody  &  Leslie  and  F.  H.  Peterson,  for  appellants. 
Calkins  &  Sharpe,  for  respondent. 

Start,  C.J.  This  action  is  based  upon  an  obligation,  which 
is  substantially  in  these  words: 

"$1,673.  Halstad,  Mixn.,  July  26th,  1894. 

"For  value  received,  we  promise  to  pay  to  the  order  of  the 
John  Good  Cordage  &  Machine  Company  the  sum  of  sixteen 
hundred  and  seventy-three  dollars,  as  follows:  Payable  by  New 
York  or  Chicago  exchange.  $560,  Nov.  15th,  1894;  $560,  Dec. 
1  st,  1894;  $560,  Dec.  15th,  1894.  Without  interest,  if  paid  as  due ; 
if  not,  then  legal  rate  from  date  until  paid." 

The  only  question  on  this  appeal  is  whether  this  is  a  nego- 
tiable instrument  under  the  law  merchant.  It  is  absolutely  essen- 
tial,  in  order  to  constitute  a  promissory  note  under  the  lawjner- 
chant,  trTat^fmr-pTDmise  beto  pay  in  money.  If  this  instrument 
can  be  construed  as  an  absolute  promise  to"pay  in  money  $1,673, 
with  exchange,  it  is  negotiable;  otherwise,  not.  Hastings  v. 
Thompson,  54  Minn.  184,  55  N.  W.  968. 

The  case  of  Bradley  v.  Lill,  4  Biss.  473,  Fed.  Cas.  No.  1,783, 
is  the  only  one  to  which  our  attention  has  been  called,  where  the 
language  of  the  instrument  was  similar  to  the  one  under  consid- 
eration. In  the  case  referred  to  the  note  was  made  in  Chicago, 
and  was  payable  at  New  York,  "in"  exchange ;  and  it  was  held 
that  the  note  was  negotiable,  upon  the  ground  that  the  promise 
was  to  pay  the  sum  named  in  the  note,  "with"  exchange,  which 
was  a  mere  incident  to  the  debt. 

In  the  case  at  bar  the  note  is  not  payable  at  any  particular 
place,  and  the  promise  is,  not  to  pay  a  given  number  of  dollars 
in  money  "with" — that  is,  plus — the  current  rate  of  exchange, 
but  it  is  to  pay  the  sum  named  in  the  note  by  New  York  or 
Chicago  exchange.  The  holder  of  this  instrument  cannot  demand 
in  payment  thereof  $1,673  in  money,  plus  the  cost  of  exchange: 
for  the  maker  is  not  bound  to  discharge  his  obligation  except  by 
means  of  inland  bills  on  New  York  or  Chicago.  Nor  can  the 
maker  tender  in  payment  $1,673  m  money,  with  the  cost  of 
exchange;  for  his  promise  is  to  make  payment  by  inland  bills, 


Oppenheimer  v.  Bank  67 

which  he  must  purchase  in  the  market.  The  instrument,  then,  is 
not  payable  in  money,  and  is,  therefore,  notJ~nfomrssory  note^ 
wTtlih2j_hT~taw'meicrhaiiL..,  Haston  v.  Ayde.  nMinnr 
Jones  v.  rales,  4  Mass.  245 ;  Irvine  v.  Lowry,  14  Pet.  293;  1 
Daniel,  Neg.  Inst.  §§55,  56;  Tied.  Com.  Paper,  §29;  1  Rand. 
Com.  Paper,  §  90.  In  reaching  this  conclusion  we  have  not  been 
unmindful  of  the  fact  that,  in  commercial  usage,  bills  of  exchange 
are  regarded  as  substitutes  for  money ;  but  this  usage  cannot  make 
them  such. 

Order  reversed,  and  a  new  trial  granted. 


THE   SUM    IS    CERTAIN    THOUGH  PAYABLE    WITH    COSTS   OF   COLLEC- 
TION  OR  AN   ATTORNEY'S   FEE.  §  4 — 5. 

Oppenheimer  v.  Bank  (1896),  gj  Tcnn.  20,  $6  Am.  St.  Rep.  ?/8. 
Appeal  in  Error  from  Chancery  Court  of  Gibson  County. 

McAllister,  J.  Complainants  filed  this  bill  to  enjoin  the 
defendant  bank  from  prosecuting  three  several  suits  before  a  Jus- 
tice of  the  Peace,  for  the  collection  of  certain  promissory  notes. 
It  is  charged  in  the  bill  that  said  notes  were  procured  by  fraud 
and  are  without  consideration,  and  that  the  bank  received  the  notes 
from  the  payees  with  actual  or  constructive  notice  of  the  fraud. 
It  is  further  charged  said  notes  were  not  negotiable,  for  the  reason 
that  each  contained  a  stipulation  for  the  payment  of  reasonable 
attorney's  fees,  and  that  said  bank  is  not  protected  in  its  title  to 
said  notes  as  an  innocent  holder  for  value  in  due  course  of  trade. 
The  Chancellor,  upon  final  hearing,  was  of  opinion  that  the 
defendant  bank  purchased  said  notes  without  actual  or  construc- 
tive knowledge  of  the  fraud,  but  held  that  the  stipulation  in 
respect  of  attorney's  fees,  destroyed  the  negotiability  of  said  instru- 
ments, and  thereby  defeated  the  claim  of  said  bank  ;  that  it  was 
an  innocent  holder  for  value  within  the  meaning  of  the  law  mer- 
chant. The  Court  decreed  that  said  notes  had  been  procured  bv 
fraud  and  were  void  in  the  hands  of  defendant  bank,  and  perpetu- 
ally enjoined  their  collection.  The  bank  appealed,  and  has 
assigned  as  error  the  action  of  the  Chancellor  in  adjudging  said 
notes  non-negotiable  on  account  of  the  stipulation  in  respect  of 
attorney's  fees. 

The  facts  out  of  which  the  present  controversy  has  arisen 
may  be  briefly  stated.    The  record  discloses  that  Curtis  Bros,  were 


7 


68  General  Requisites  of  the  Contract 

the  proprietors  of  a  patent  churn,  which  they  were  engaged  in 
selling  in  Gibson  County.  Complainants  purchased  of  Curtis  Bros, 
the  exclusive  right  to  sell  this  churn  in  the  State  of  Louisiana  and 
certain  counties  of  Mississippi,  for  which  they  agreed  to  pay  the 
sum  of  $2,000,  evidenced  by  four  notes,  each  for  the  sum  of  $500, 
and  payable,  respectively,  in  seven,  eight,  nine,  and  ten  months 
from  date.  The  following  is  a  specimen  of  the  notes  in  controv- 
ersy, viz. : 

"Trenton,  Tenn.,  June  3,  1889. 
"Nine  months  after  date  we  promise  to  pay  to  the  order  of 
Curtis  Bros.,  or  bearer,  the  sum  of  five  hundred  dollars,  negoti- 
able and  payable  at  the  Exchange  Bank  of  Trenton,  Tenn.,  for 
value  received.  The  drawers  and  indorsers  severally  waive  pre- 
sentment for  payment,  protest,  and  notice  of  protest  and  nonpay- 
ment of  this  note,  and,  in  case  of  suit,  agree  to  pay  all  reasonable 
attorney's  fees  for  collecting  the  same. 
"$500  due  February  3,  1890. 

"L.  Oppenheimer, 
"C.  T.  Love, 
"R.  F.  Ross, 
"H.  R.  Camp." 

On  the  twenty-seventh  and  twenty-eighth  of  June,  1889,  three 
of  these  notes  were  purchased  by  the  defendant  bank  at  a  discount 
of  twenty  per  cent. — that  is  to  say,  the  bank  paid  twelve  hundred 
dollars  for  the  three  notes  of  the  aggregate  face  value  of  fifteen 
hundred  dollars.  H.  R.  Camp,  one  of  the  signers  of  the  notes, 
was  in  the  employment  of  Curtis  Bros,  in  the  capacity  of  salesman, 
and  negotiated  the  sale  to  Oppenheimer  of  the  exclusive  right  to 
sell  this  churn  in  Louisiana  and  Mississippi.  It  was  agreed  be- 
tween the  original  parties,  at  the  time  the  notes  were  executed, 
they  were  not  to  be  transferred,  and  were  alone  payable  out  of 
the  profits  of  the  new  business.  Curtis  Bros.,  Camp,  and  Ames, 
soon  after  the  execution  of  the  notes,  left  the  state  clandestinely, 
and  their  whereabouts  is  unknown.  The  proof  abundantly  shows 
that  Curtis  Bros,  were  in  collusion  with  Camp,  and  that  said  notes 
were  procured  to  be  executed  upon  false  and  fraudulent  repre- 
sentations, and  as  between  the  original  parties  there  was  a  total 
failure  of  consideration.  The  defendant  bank,  however,  relies 
upon  the  plea  of  innocent  purchaser  for  value  before  maturity,  in 
due  course  of  trade,  and  without  notice.  Defendant's  counsel 
insist  that,  complainant  not  having  appealed  from  the  ruling  of 
the  Chancellor  that  the  bank  had  no  actual  or  constructive  notice 
of  the  fraudulent  conduct  of  the  payees  in  procuring  the  execution 


Oppenheimer  v.  Bank  69 

of  the  notes,  this  question  cannot  be  reopened  in  this  court.     But 
this  position  is  manifestly  erroneous,  since,  upon  the  appeal  of  the  l 
bank,  the  whole  case  is  open  for  re-examination,  and  if  the  decree   > 
m favor    of    complainant    is    found    correct    upon    any    ground, 
although  incorrect  upon  the  ground  assigned  by  the  Chancellor, 
we  should  affirm  it. 

The  contention  of  learned  counsel  for  complainant  is  that  the 
purchase  of  the  notes  in  suit  from  strangers  at  a  discount  of 
twenty  per  cent.,  when  the  bank  knew  that  Oppenheimer,  one  of 
the  makers,  was  perfectly  solvent,  indicates  knowledge  of  the 
fraud,  or  that  the  bank  had  such  constructive  notice  as  to  put  it 
upon  inquiry.  As  said  by  this  court :  "When  the  indorsee  takes 
negotiable  paper  before  maturity  under  circumstances  which  might 
reasonably  create  a  suspicion  that  it  was  not  good — as,  where  he 
buys  a  note  on  a  solvent  man,  having  less  than  one  year  to  run, 
for  $333.33  at  $125,  with  an  agreement  to  pay  $25  more  if  col- 
lected without  suit,  he  takes  it  at  his  peril  and  subject  to  the 
equities  between  the  original  parties."  Hunt  v.  Sanford,  6  Yer., 
387;  7  Heis.,  163. 

Says  Mr.  Tiedeman,  in  his  work  on  Commercial  Paper,  Sec. 
291 :  "It  is  said  that  inadequacy  of  price  paid  for  negotiable  paper 
may  be  so  gross  as  to  justify  the  conclusion  that  the  purchaser  is 
charged  with  notice  of  a  fraudulent  or  defective  title  on  the  part 
of  the  vendor.  And  it  has  been  held  there  was  constructive  notice 
of  fraud  or  of  some  other  equally  effective  defense  to  the  paper 
where  the  purchaser  paid  $125  for  a  note  of  $333.33,  $50  for  a 
note  of  $300,  $5  for  a  note  of  $300.  On  the  other  hand,  it  has 
been  held  that  the  purchaser  of  a  commercial  instrument  was  a 
holder  for  value,  and  hence  took  it  free  from  equitable  defenses, 
when  he  paid  $100  for  a  note  of  $250,  $50  for  a  note  of  $100,  or 
$12.50  for  a  note  of  $25.  It  is  certain  that  a  pure!y_jornirnl|| 
consideration  would  not  make  the__purchaser  a  holder  for  value/' 
And  it  may  be  stated,  subject  to  an  explanation  of  terms7fhat 
an  inadequate  price  always  puts  the  person  upon  inquiry  and 
may,  certainly,  along  with  other  suspicious  circumstances,  charge 
him  with  notice  of  existing  defenses.  But  every  price  is  not 
inadequate  which  is  less  than  the  face  value  of  the  instru- 
ment purchased.  Commercial  paper  of  every  kind  has  its  com- 
mercial value,  rising  above  or  falling  below  par,  according  to 
the  financial  credit  of  the  person  liable  on  it.  Only  that  price  is 
inadequate  which  falls  below  the  market  value,  and  if  the  dispro- 
portion between  the  price  paid  and  the  market  value  be  very 
great,  it  is  fair  and  just  to  presume  that  the  purchaser  had  rea- 


70  General  Requisites  of  the  Contract 

sonable  grounds  for  suspecting  fraud  or  some  other  defense  to  the 
instrument.  Each  case  must,  therefore,  stand  on  its  own  merits. 
One-half  the  face  value  may,  under  some  circumstances,  be  a 
grossly  inadequate  price,  while,  under  different  circumstances,  it 
may  be  greatly  in  excess  of  what  the  instrument  is  worth  on  the 
market."    Tiedeman,  Sec.  291. 

We  think  the  rule  laid  down  by  Mr.  Tiedeman  is  sound,  and 
furnishes  an  intelligible  basis  for  the  determination  of  what  con- 
stitutes inadequacy  of  price  in  the  purchase  of  commercial  paper. 
We  cannot  say,  however,  in  view  of  this  rule  and  the  proof  in  the 
record,  that  there  was  any  such  gross  disparity  between  the  com- 
mercial value  of  the  notes  and  the  price  actually  paid,  as  to 
awaken  suspicion  in  the  minds  of  the  officers  of  the  bank  of  any 
infirmity  in  the  paper.  The  proof  shows  that  this  bank  was  accus- 
tomed, during  this  time,  to  discount  paper  at  rates  varying  from 
twelve  to  twenty-five  per  cent,  per  annum,  and  that  it  had,  prior 
to  this  time,  discounted  paper  held  by  these  payees  on  other  sol- 
vent parties  at  such  rates.  It  was  also  insisted  in  argument  that 
H.  R.  Camp,  one  of  the  makers  of  the  notes,  negotiated  the  sale 
of  this  paper  to  the  bank,  and  that  this  fact  was  sufficient  to  put 
the  purchaser  upon  inquiry.  Nothing  can  be  predicated  upon  this 
position,  for  the  reason  that  it  does  not  distinctly  appear  from  the 
record  whether  it  was  Ames  or  Camp  who  sold  the  notes  to  the 
bank.  The  officers  of  the  bank  who  purchased  the  paper,  are 
unable  to  state  which  of  these  parties  conducted  the  transaction, 
and  there  is  no  other  proof  in  the  record  on  the  subject.  We  hold, 
however,  this  feature  unimportant  in  this  case.  We  find  no  facts, 
or  circumstances  in  the  record  fixing  the  bank  witH  km > \v  1  e d ge . 
actual  or  constructive,  of  the  fraudulent  character  of  the  paper. 
and  the  holding  of  the  Chancellor  in  respect  of  this  proposition 
is  correct. 

The  next  question  presented  is  whether  the  stipulation  •  in 
respect  of  payment  of  attorney's  fees,  written  in  the  face  of  the 
note,  destroys  its  negotiability  .and  thus  dismantles  the  note,  allow- 
ing proof  of  fraud  in  its  execution.  The  question  presented  has 
given  rise  to  much  judicial  controversy,  and  the  decisions  an- 
nounced in  different  states  and  jurisdictions  are  by  no  means 
reconcilable,  and,  since  the  question  is  one  of  first  impression  in 
this  state,  we  shall,  after  a  review  of  the  authorities,  adopt  that 
view  which  most  commends  itself  to  our  reason  and  judgment. 

Mr.  Tiedeman,  in  the  work  already  cited,  Commercial  Paper, 
Sec.  28  (b),  says:  "Bills  and  notes,  particularly  the  latter,  some- 
times contain  stipulations  that,  if  not  paid  voluntarily,  the  drawer 


OPPENHEIMER    V.    BANK  71 

or  maker  will  pay  the  attorney  and  collection  fee.  It  has  been 
much  discussed  what  is  the  effect  of  such  a  stipulation  upon  the 
legal  character  of  the  instruments  to  which  they  are  added. 

CD  "A  few  decisions  maintain  that  the  stipulation  is  in  the 
nature  of  a  usurious  charge  and  avoids  the  whole  transaction 
under  the  laws  prohibiting  usury."  Citing  State  v.  Taylor,  10 
Ohio,  378;  Shelton  v.  Gill,  n  Ohio,  417;  Dow  v.  Updike,  11  Neb., 

95- 

It  may  be  remarked  under  this  head  that,  in  the  case  of  Par- 
ham  v.  /.  /.  Pulliam,  Exr.  etc.,  5  Cold.,  497,  this  court  held  that 
a  stipulation  in  a  note  to  pay  attorney's  commission  for  collecting 
is  not  usurious.CPOther  decisions  hold  the  stipulation  to  be  void 
because  it  is  in  the  nature  of  a  penalty  and  tends  to  the  oppression 
of  impecunious  debtors.     But  the  avoidance  of  the  stipulation  on 
such  grounds  enables  the  courts  to  treat  the  stipulation  as  mere 
surplusage  and  hold  the  instrument  to  be  negotiable  notwithstand-  . 
ing."    Citing  JJ  Pa.  St.,  131  ;  84  Pa.    St.,  410;  92  Pa.  St.,  227;  / 
84  N.  C,  24 ;  63  Mo.,  23 ;  64  Mo.,  477 ;  71  Mo.,  618,  622,  627 ;  53  I 
Wis.,  599 ;  27  Minn.,  240;  14  Bush,  814;  Meyer  v.  Hart,  40  Mich., 
517;  Bulloch  v.  Taylor,  39  Mich.,  138;  Garr  v.  Louisville  Bank- 
ingCo.,  11  Bush,  182. 

i^J'In  a  large  number  of  cases  the  stipulation  is  held  to  be  valid, 
but  because  it  renders  the  gross  sum  to  be  recovered  on  the  instru- 
ment uncertain,  its  insertion  in  a  bill  or  note  is  declared  to  destroy 
its  negotiability."    Citing  Szveeney  v.  Thickstrew,  yy  Pa.  St.,  131  ; 
Woods  v.  North,  84  Pa.  St.,  410;  Johnston  v:  Spear,  92  Pa.  St., 
227;  First  National  Bank  v.  Bynum,  84  N.  C,  24 ;  First  National  ") 
Bank  v.  Gay,  '63  Mo.,  33  ;  Samstag  v.  Conley,  64  Mo.,  477;  First     X ' 
National  Bank  v.  MarJozv,  71  Mo.,  618;  Storr  v.  Wakefield,  71      \ 
Mo.,  622;  First  National  Bank  v.  Gay,  71  Mo.,  627;  Morgan  v.      J^y^^y 
Edwards,  53  Wis.,  599 ;  Jones  v.  Radtiz,  27  Minn.,  240.  ^xx>--  S>-<^ 

(Hr/There  are  also  other  cases  which  not  only  recognize  the 
validity  of  the  stipulation,  but  also  the  negotiability  of  the  paper 
in  which  it  appears."  Citing  Dietrich  v.  Baylie,  23  La.  Ann.,  767; 
Overton  v.  Matthews,  35  Ark.,  147 ;  Smith  v.  Muncie  National 
Bank,  29  Ind.,  159;  First  National  Bank  v.  Canatsey,  34  Ind., 
149;  Johnston  v.  Crossland,  34  Ind.,  344:  Smith  v.  St.  Silvers, 
32  Ind.,  321;  Wyant  v.  Parttorff,  37  Ind.,  512;  Hubbard  v. 
Harrison,  38  Ind.,  325;  Wilkes  v.  Woollen,  54  Ind.,  164; 
Sperry  v.  Harr,  32  Iowa,  184;  Seatin  v.  Scoville,  18  Kan.,  435; 
Hozvestien  v.  Barnes,  U.  S.  C.  C,  Kansas,  28  Am.  Rep.,  406  (S. 
C,  5  Dillon,  482)  ;  Heard  v.  Dubuque  Bank,  8  Neb.,  to;  Farmers' 
National  Bank  v.  Rasmusson,  1  Dakota,  60:  Wilson  Sewing  Ma- 


72  General  Requisites  of  the  Contract 


chine  Co.  v.  Moreno,  7  Fed.  Rep.  806;  Storieman  v.  Pyle,  35  Ind., 
103.  Indiana  now  prohibits  by  statute  such  stipulations  in  notes 
unless  unconditional.     Rev.  Stat.  (1876),  149. 

Mr.  Tiedeman  remarks  that  where  the  amount  to  be  recov- 
ered as  attorney's  fees  is  explicitly  stated  in  the  instrument,  it 
would  seem  that  the  sum  of  money  to  be  recovered  on  the  paper, 
with  the  attorney's  fees  added  to  the  principal  and  interest,  would 
be  as  certain  as  the  principal  and  interest  would  be  alone,  for  the 
interest  continues  to  accumulate  if  the  paper  is  not  honored  at 
maturity.  When  the  exact  amount  of  the  fee  is  not  stated,  only 
reasonable  fees  can  be  recovered,  and  there  may  be  some  ground 
for  objecting  to  the  negotiability  of  such  an  instrument.  But  it 
would  seem  that  even  such  an  instrument  ought  to  be  held  nego- 
tiable, for  the  stipulation  for  reasonable  attorney's  fees  renders 
the  amount  no  more  uncertain  than  the  addition  by  the  law  mer- 
chant to  the  principal  sum  of  the  costs  of  protest  and  the  taxed 
cost  of  the  suit. 

Mr.  Randolph,  in  his  work  on  Commercial  Paper,  Vol.  I., 
Sec.  205,  in  treating  this  subject,  says:  "The  effect  of  a  stipula- 
tion for  attorney's  fees  or  costs  of  suit  contained  in  a  note  has 
been  the  subject  of  much  consideration,  more  especially  in  our 
Western  States.  As  an  agreement  and  irrespective  of  usury  laws 
and  other  statutory  prohibitions,  such  a  stipulation  is  in  itself 
valid."  Citing  Meacham  v.  Penrose,  60  Miss.,  217 ;  Brown  v. 
Barber,  59  Ind.,  533 ;  First  Nat.  Bank  v.  Breese,  39  Iowa,  640 ; 
Garver  v.  Pontorris,  66  Ind.,  191  ;  42  Ind.,  176;  61  Ind.,  276;  47 
Ind.  559;  85  Ind.,  317;  Miner  v.  Paris  Exchange  Bank,  53  Texas, 
559.  "And  the  fees  so  stipulated  for  may  be  recovered  by  the 
holder  of  the  notes,  although  not  the  original  payee."  Citing 
Johnson  v.  Crossland,  34  Ind.,  334.  "And  where  a  stipulation  of 
'  this  sort  is  contained  in  a  bill  of  exchange,  it  has  been  held  to  be 
embraced  in  the  liability  assumed  by  the  acceptor."  Bank  of 
British  North  America  v.  Ellis,  2  Fed.  Rep.,  44;  29  Ind.  158. 

"It  may  be  said  in  general,"  says  the  author,  "that  such  a 
stipulation  for  fees  does  not  affect  the  negotiability  of  the  note 
containing  it,  even  though  the  stipulation  be  restricted  to  the  case 
of  suit  being  brought  on  the  instrument."  Citing  1  Daniel  Neg. 
Instrument,  66;  2  Parson's  Bills  and  Notes,  147;  Dietrich  v.  Bay- 
He,  23  La.  Ann.,  767;  Heard  v.  Dubuque  Co.  Bank,  8  Neb.  10, 
24;  S perry  v.  Horr,  32  Iowa,  184;  Seaton  v.  Scoville,  18  Kan. 
433;  7  Fed.  Rep.,  806;  16  Fed.  Rep.,  89;  Trader  v.  Chiccster,  41 
Ark.,  242;  Gaar  v.  Louisznlle  Banking  Co.,  n  Bush,  180;  Nicher- 
son  v.  Sheldon,  33  111.,  372;  and  citing  also  the  Indiana  cases; 


Oppenheimkk  v.   .Bank.  73 

Davidson  v.  Vorsc,  52  Iowa,  384;  McGill  v.  Griffin,  32  Iowa,  445 ; 
Randolph  on  Com.  Paper,  Vol.  III.,  §§  1717,  1718;  Chitty,  770. 

Says  Mr.  Daniel,  in  his  work  on  Negotiable  Instruments, 
Sec.  62  (a)  :  "Such  instruments  should,  we  think,  be  upheld  as 
negotiable.  They  are  not  like  contracts  to  pay  money  and  do  some 
other  thing.  They  are  simply  for  a  payment  of  a  certain  sum  of 
money  at  a  certain  time,  and  the  additional  stipulation  as  to 
attorneys'  fees  can  never  go  into  effect  if  the  terms  of  the  note 
or  bill  are  complied  with.  They  are,  therefore,  incidental  and 
ancillary  to  the  main  engagement,  intended  to  assure  its  perform- 
ance or  to  compensate  for  trouble  and  expense  entailed  by  its 
breach.  At  maturity  negotiable  paper  ceases  to  be  negotiable  in 
the  full  commercial  sense  of  the  term,  as  heretofore  explained, 
though  it  still  passes  from  hand  to  hand  by  the  negotiable  forms 
of  transfer,  and  it  seems  paradoxical  to  hold  that  instruments  evi- 
dently framed  as  bills  and  notes  are  not  negotialbe  during  their 
currency  because,  when  they  cease  to  be  current,  they  contain  a 
stipulation  to  defray  the  expenses  of  collection.  Such  stipula- 
tions do  not,  we  think,  render  such  instruments  usurious.  The 
additional  amounts  are  in  consideration  of  additional  trouble  and 
expense  inflicted  on  the  holder,  and  not  excessive  interest  for  the 
loan  or  forbearance  of  money."  The  author  states  further  that 
the  cases  sustaining  the  negotiability  of  such  instruments  consider 
that  the  stipulation  in  respect  of  attorneys'  fees  is  valid  because 
it  is  an  indemnification  assured  by  the  maker  against  the  conse- 
quences of  his  own  act,  for,  unless  in  default,  he  will  not  have  to 
pay  the  additional  amount ;  that  it  is  consonant  with  public  policy, 
because  it  adds  to  the  value  of  the  paper ;  has  a  tendency  to  lower 
the  rate  of  discount,  not  only  because  it  promises  less  expensive 
collection,  but  bears  evidence  of  a  greater  degree  of  confidence  on 
the  part  of  the  maker  in  his  ability  to  pay  without  suit,  and  that  it 
does  not  impair  the  negotiability  of  the  instrument,  for  the  reason 
that  the  sum  to  be  paid  at  maturity  is  certain ;  that  commercial 
paper  is  expected  to  be  paid  promptly ;  that,  if  so  paid,  no  element 
of  uncertainty  enters  into  the  contract ;  that  it  ceases  to  be  negoti- 
able in  the  full  sense  of  the  term  if  not  paid  at  maturity,  and  that 
the  additional  agreement  relates  rather  to  the  remedy  upon  the 
note,  if  a  legal  remedy  be  pursued,  than  to  the  sum  which  the 
maker  is  bound  to  pay,"  etc.  2  Daniel  on  Neg.  Ins.  (3d  Ed.). 
Sec.  62. 

This  doctrine  has  received  the  indorsement  of  such  eminent 
jurists  as  Mr.  Justice  Brewer,  now  an  Associate  Justice  of  the 
United  States  Supreme  Court,  who  said,  in  the  case  of  Scaton  v. 


74  General  Requisites  of  the  Contract 

Scoville,  18  Kan.,  781,  viz.:  "It  seems  to  us,  therefore,  a  just 
conclusion  that  paper  otherwise  negotiable  is  not  rendered  non- 
negotiable  by  a  stipulation  for  the  payment  of  costs  of  collection, 
including  attorneys'  fees,  in  case  suit  is  brought  thereon."  Justice 
Brewer  cited  with  approval  the  case  of  Gaar  v.  Louisville  Banking 
Co.,  11  Bush  (Ky.),  180  (S.  C,  21  Am.  Rep.,  709),  in  which  it 
was  said,  viz. :  "The  reason  for  the  rule,  that  the  amount  to  be 
paid  must  be  fixed  and  certain,  is  that  the  paper  is  to  become  a 
substitute  for  money,  and  this  it  cannot  be  unless  it  can  be  ascer- 
tained from  it  exactly  how  much  money  it  represents.  As  long, 
therefore,  as  it  remains  a  substitute  for  money,  the  amount  which 
it  entitles  the  holder  to  demand  must  be  fixed  and  certain ;  but 
when  it  is  past  due,  it  ceases  to  have  that  peculiar  quality  denom- 
inated negotiability,  or  to  perform  the  office  of  money ;  and  hence, 
anything  which  only  renders  its  amount  uncertain  after  it  has 
ceased  to  be  a  substitute  for  money,  but  which  in  nowise  affected 
it  until  it  had  performed  its  office,  cannot  prevent  its  becoming 
negotiable  paper." 

Upon  a  careful  review  of  the  authorities,  we  can  perceive  no 
reason  why  a  note,  otherwise  endowed  with  all  the  attributes  of 
negotiability,  is  rendered  non-negotiable  by  a  stipulation  which  is 
entirely  inoperative  until  after  the  maturity  of  the  note  and  its  dis- 
honor by  the  maker.  The  amount  to  be  paid  is  certain  during  the 
currency  of  the  note  as  a  negotiable  instrument,  and  it  only  be- 
comes uncertain  after  it  ceases  to  be  negotiable  by  the  default  of 
the  maker  in  its  payment.  It  is  eminently  just  that  the  creditor 
who  has  incurred  an  expense  in  the  collection  of  the  debt,  should 
be  reimbursed  by  the  debtor  by  whose  default  the  action  was  ren- 
dered necessary  and  the  expense  entailed.  So  far  from  such  a 
stipulation  discounting  the  negotiability  of  the  instrument^  we 
think,  "with  MrT'Daniel.  that~TTls~lmTridernnrfication  assured  by 
the  maker  against  the  consequences  of  his  own  act ;  that  it  is  con- 
crman«_wMth  puhlir  policy  because  it  adds  to  the  value  of  the 
paper ;  has  a  tendency  to  jnjA^e r_Jjh e_  rate_  of  discount,  not  only 
because  it  promises  less  expensive  collection,  but  bears  evidence 
of  a  greater  degree  of  confidence  on  the  part  of  the  maker  in  his 
ability  to  pay  without  suit. 

We  are,  therefore,  of  opinion  the  decree  of  the  Chancellor 
adjudging  said  notes  non-negotiable  was  erroneous.  We  hold, 
however,  that  these  notes  being  fraudulent  in  their  inception  and 
without  consideration  between  the  original  parties,  the  bank  will 
only  be  entitled  to  recover  to  the  extent  of  the  sum  actually  paid 
by  it,  to  wit,  the  sum  of  $t,20Q  and  interest.     In  other  words,  we 


First  National  Bank  v.  Greenville  National  Bank       75 

hold  there  was  a  negotiation  of  the  notes  in  due  course  of  trade 
only  in  extent  to  the  amount  ^actually  paid.  Petty  v.  Hannum,  2 
Hum.,  102;  Hole  man  v.  Hobson,  8  Hum.,  127;  May  v.  Campbell, 
7  Hum.,  450;  Green  v.  Stuart,  7  Baxter,  422. 

The  reason  of  this  rule  is  thus  stated  by  Mr.  Daniel,  viz. : 
"When  the  execution  of  a  bill  or  note  has  been  induced  by  fraud, 
a  different  rule  applies.  The  bona  fide  holder  of  it,  for  value  and 
without  notice,  is  undoubtedly  entitled  to  be  protected  against  a 
loss  which  would  befall  him  if  the  party  defrauded  were  permitted 
to  set  up  the  defense  of  fraud  on  the  part  of  the  payee  against  him. 
But  it  does  not,  therefore,  follow  that  he  may  recover  of  such 
party  the  whole  amount,  when  he  has  paid  a  less  sum.  For  his 
protection  and  security  against  loss,  it  is  only  necessary  that  he 
should  be  paid  back  the  amount  which  he  was  induced  to  give  for 
the  instrument  by  its  appearance  of  validity,  and,  therefore,  such 
amount  is  the  limit  of  his  recovery  against  the  drawer  or  maker 
who  was  defrauded  into  the  execution  of  the  instrument.  *  *  * 
The  paper  derives  its  validity  wholly  from  the  circumstances  that 
it  has  been  obtained  for  value  without  notice  by  an  innocent  pur- 
chaser. For  his  protection,  it  is  maintained  in  his  hands  as  a 
legal  obligation.  The  object  of  the  law  is  to  sayg_  hjrcLfrom  los 
and,  to  do  that,  a  recovery  of  the  amount  he  may  advance  is  all 
that  can  be  required.  To  go  beyond  it  would  be  inequitable  and 
unjust  to  the  party  after  that  equally  entitled  to  be  protected  from 
loss."    Daniel  on  Negotiable  Instruments,  Vol.  I.,  Sec.  758. 

INSTRUMENT  MUST  BE  PAYABLE  IN   MONEY.  §  3 — 2. 

First  Nat.  Bank  v.  Greenville  Nat.  Bank  {1892),  84  Tex.  40. 

John  Church  and  Garnet  &  Muse,  for  appellant. 
Mathezv  &  Newland  and  Craig  &  Wolfe,  for  appellee. 

Stayton,  Chief  Justice.  This  action  was  brought  by  ap- 
pellee to  recover  on  the  following  instrument : 

"First  National  Bank, 
"$2180.  "Farmersville,  Texas,  April  21,  1887. 

"Thomas  Wilkerson  has  deposited  in  this  bank  twenty-one 
hundred  and  eighty  and  00/100  dollars  in  cks.,  payable  to  the 
order  of  himself,  on  the  return  of  this  certificate  properly  indorsed, 
one  day  after  date. 

"L.  E.  Bumpass,  Cashier." 


76  General  Requisites  of  the  Contract 

This  instrument  was  executed  by  the  cashier  of  the  bank, 
appellant.  It  is  admitted  that  the  abbreviation  "cks."  means 
checks,  and  that  the  paper  came  into  the  hands  of  appellee  under 
such  circumstances  as  to  entitle  it  to  recover  if  the  paper  be  nego- 
tiable.   This  is  the  entire  case  as  it  is  presented  to  this  court. 

It  is  claimed  that  the  instrument  sued  on  is  a  negotiable  cer- 
tificate of  deposit ;  and  if  this  is  true,  we  are  of  opinion  that  plain- 
tiff was  entitled  to  recover;  for,  notwithstanding  some  conflict  of 
authority,  it  seems  to  us  that  in  accordance  with  the  great  weight 
of  authority,  as  well  as  reason,  such  paper  when  negotiable  in 
form  should  be  considered  negotiable  in  fact  and  law. 

A  certificate  of  deposit  is  ordinarily  defined  to  be  a  written 
acknowledgment  by  a  bank  or  banker  of  the  receipt  of  a  sum  of 
money  on  deposit,  which  the  bank  or  banker  promises  to  pay  to 
the  depositor,  to  the  order  of  the  depositor,  or  to  some  other  per- 
son or  to  his  order,  and  its  form  must  determine  its  negotiability. 
For  the  purposes  of  this  case  this  definition  is  sufficiently  accurate 
and  comprehensive,  and  the  first  question  is,  whether  the  instru- 
ment sued  on  can  be  deemed,  within  the  meaning  of  the  law,  or 
the  understanding  of  mercantile  men,  a  certificate  of  deposit.  To 
give  to  an  instrument  the  character  of  a  "certificate  of  deposit. 
the  deposit  on  which  it  is_based  must  be  one  of  iiioiicx.:  and  where 
this  appears  to  be  the  case,  from  the  face  of  the  paper,  the  word 
"payable"  becomes  certain  as  to  the  mode  or  medium  in  which 
payment  must  be  made ;  for  the  law  implies,  under  such  a  state 
of  facts,  a  promise  to  pay  money  for  money  deposited,  and  to  pay 
a  sum  equal  to  the  deposit. 

The  instrument  before  us  has  the  usual  form  of  a  certificate 
of  deposit  in  all  respects,  except  that  it  shows  upon  its  face  that 
checks,  and  not  money,  were  deposited.  When  money  is  depos- 
ited with  a  bank,  not  merely  for  safe  keeping,  it  becomes  the 
property  of  the  bank,  and  the  relation  of  creditor  and  debtor  arises 
between  them ;  but  when  the  deposit  is  of  something  else  than 
money,  this  relation  can  not  arise  from  the  mere  fact  of  deposit 
as  on  an  implied  contract.  The  paper  itself  informs  us  that  the 
things  deposited  were  checks ;  but  we  are  not  advised  by  it  whether 
the  sum  named  in  the  paper  is  the  sum  called  for  on  the  face  of 
the  checks  or  their  estimated  value,  but  were  this  otherwise,  that 
would  be  unimportant  in  determining  the  true  character  of  the 
instrument. 

If  the  word  "checks"  were  used  in  the  sense  attributed  to  it 
by  mercantile  men  and  law  writers — "an  order  upon  a  bank  or 
banking  house  purporting  to  be  drawn  upon  a  deposit  of  funds 


First  National  Bank  v.  Greenville  National  Bank       77 

for  the  payment  at  all  events  of  a  certain  sum  of  money  to  a 
person  named  therein,  to  his  order  or  bearer,  and  payable  instantly 
on  demand" — the  inference  would  perhaps  be,  that  the  checks 
deposited  were  checks  on  some  bank  other  than  that  issuing  the 
paper  sued  upon,  and  for  the  purpose  of  safe  keeping  or  collection  ; 
but  in  neither  event  would  the  relation  of  debtor  and  creditor 
arise  from  such  a  deposit.  But  for  the  determination  of  this  case 
we  can  not  indulge  in  inferences  or  presumptions  other  than  such 
as  arise  as  matter  of  law. 

It  has  frequently  been  said  that  certificates  of  deposit  have 
most  of  the  characteristics  of  promissory  notes,  and  this  seems 
to  be  true ;  but  a  paper  to  be  entitled  to  the  force  and  effect  which 
paper  of  these  classes  have,  whether  negotiable  or  non-negotiable, 
must  contain  a  promise  "in  writing  by  one  person  to  pay  another 
person  therein  named,  or  to  his  order,  or  to  bearer,  a  specified 
sum  of  money  absolutely  and  at  all  events."  Dan.  on  Neg.  Inst., 
28.  A  paper  not  having  these  characteristics  can  not  be  a  certifi- 
cate of  deposit  or  promissory  note.  The  promise  to  pay  must  be 
either  an  express  promise  or  such  a  promise  as  must  necessarily 
be  implied  from  words  used  in  the  instrument ;  but  this  implication 
will  not  arise  simply  from  the  fact  that  the  paper  may  evidence 
the  indebtedness  of  its  maker  to  the  person  to  whom  it  is  given. 

In  certificates  of  deposit  there  is  sometimes  an  express  prom- 
ise to  pay,  but  the  promise  is  most  frequently  implied  from  the 
word  "payable"  used  in  connection  with  the  acknowledgment  of 
the  deposit  or  receipt  of  a  named  sum  of  money  by  or  for  the 
benefit  of  the  person  to  whom  or  to  whose  order  the  payment  is 
to  be  made.  The  acknowledgment  by  a  banker  of  the  deposit 
of  money  by  another,  nothing  further  showing  that  it  was  a 
special  deposit,  is  sufficient  to  show  the  relation  of  debtor  and 
creditor  between  the  banker  and  depositor  or  person  for  whose 
benefit  the  deposit  is  made,  and  the  word  "payable"  used  in  such 
a  connection  must  be  understood  to  be  used  with  reference  to  that 
relation,  and  can  mean  nothing  less  than  that  the  maker  of  the 
paper  intends  thereby  to  be  understood  to  promise  to  pay  the  sum 
acknowledged  to  have  been  received.  The  word  "payable"  in 
such  a  connection  can  have  no  other  application. 

If  the  acknowledgment  of  the  receipt  of  the  money  showed 
that  the  deposit  was  made  only  for  safe  keeping — as  a  special 
deposit — then  the  word  "payable"  used  in  connection  with  such 
acknowledgment  would  certainly  not  be  construed  into  an  abso- 
lute promise  to  pay  money,  but  would  be  deemed  only  an  agree- 


78  General  Requisites  of  the  Contract 

ment  to  deliver  the  special  deposit,  and  the  paper  could  not  be 
held  to  be  either  a  certificate  of  deposit  or  promissory  note. 

The  instrument  sued  on  shows  clearly  that  the  paper  styled 
"checks"  was  deposited,  and  does  not  show  that  money  was;  and 
it  is  unimportant  whether  the  sum  named  in  the  instrument  be 
the  face  value  of  the  checks  or  their  estimated  value,  for  the  word 
"payable,"  used  in  connection  with  the  acknowledgment  of  the 
deposit  ot  something  else  than  money,  can  not  be  held  necessarily 
to~rJe  the  equivalent  of  any  express  promise  to  pay  any  sum  of 
money^  It  becomes  a  promise  to  pay  only  when  used  in  connection 
with  words  showing  an  obligation  to  pay. 

Literally,  the  words  "payable  to  the  order  of  himself  on  the 
return  of  this  certificate  properly  indorsed"  are  descriptive  of  the 
checks  received,  but  the  words  could  never  be  so  considered  when 
they  have  application  to  a  sum  of  money  deposited  generally,  and 
to  which  they  relate.  We  do  not  think,  however,  that  these  words 
were  used  as  descriptive  of  the  checks  deposited ;  for  the  original 
certificate,  made  part  of  the  transcript,  shows  that  it  was  written 
on  a  blank  form  intended  for  certificates  of  deposit,  and  we  refer 
to  this  matter  only  to  show  that  the  word  "payable,"  when  used  in 
such  papers,  does  not  always  import  a  promise  to  pay.  The  word 
"payable"  is  a  descriptive  word,  meaning  "capable  of  being  paid ; 
suitable  to  be  paid;  admitting  or  demanding  payment;  justly  due; 
legally  enforceable"  (Webster)  ;  and  "to  pay"  means  to  discharge 
one's  obligation  to  another.  If  the  obligation  be  to  deliver  specific 
articles  or  a  package  of  money  left  on  deposit,  although  the  obli- 
gation arises  from  an  express  promise,  this  would  not,  although 
reduced  to  writing,  constitute  a  promissory  note, ;  nor  would  a 
like  promise,  coupled  with  an  acknowledgment  of  the  deposit  of 
such  things,  constitute  a  certificate  of  deposit ;  but  if  the  obligation 
be  to  pay  a  certain  sum  of  money  absolutely,  the  maker  of  the 
instrument  so  obligated  to  pay  ought  to  be  held  to  have  promised 
to  pay  when  he  executes  such  an  instrument  as  that  before  us 
would  be  if  the  words  "in  cks."  were  not  in  it. 

If  a  promise  to  pay  something  could  be  implied  from  the 
instrument,  could  a  promise  to  pay  a  certain  sum  of  money  be 
implied?  If  money  had  been  delivered  to  the  bank  by  Wilkerson, 
in  the  absence  of  something  showing  that  the  parties  did  not  so 
intend,  the  money  would  have  become  the  property  of  the  bank, 
and  the  relation  of  debtor  and  creditor  would  have  arisen,  and  the 
amount  of  the  debt  and  credit  would  thus  have  been  fixed ;  but 
the  instrument  shows  that  checks,  and  not  money,  were  deposited. 
Whether  mercantile  paper  passes  to  a  bank  on  deposit  depends 


First  National  Bank  v.  Greenville  National  Bank       79 

upon  the  intent  of  the  parties  evidenced  by  their  acts ;  but  there 
is  nothing  in  the  record  before  us,  except  the  instrument  sued  on, 
from  which  the  intent  of  the  parties  may  be  ascertained. 

If  we  assume  that  the  checks  became  the  property  of  the 
bank,  which  is  the  most  favorable  presumption  for  appellee,  then 
may  or  must  we  imply  a  promise,  if  a  promise  could  be  implied, 
to  pay  the  sum  named  in  the  paper  sued  on.  Unless  we  are 
required  by  the  instrument  itself  to  assume  this,  no  person  dealing 
with  the  depositor  could  safely  make  such  assumption.  From  the 
words,  "Thomas  Wilkerson  has  deposited  in  this  bank  twenty-one 
hundred  and  eighty  and  00/100  dollars  in  checks,"  even  if  it  be 
conceded  that  title  to  the  paper  passed  to  the  bank,  we  can  not 
assume  that  the  bank  became  obligated  to  pay  him  that  sum  in 
money,  as  must  we,  did  the  certificate  show  that  he  had  deposited 
that  amount  ot  money.  The  instrument  does  show  that  the  bank 
assumed  some  obligation  to  Wilkerson ;  and  if  it  could  be  held 
that  from  it  a  promise  to  pay  some  sum  in  money  might  be 
implied,  this  would  not  be  sufficient  to  sustain  plaintiff's  case ; 
for  he  must,  in  order  to  maintain  this  action,  show  not  merely  that 
the  bank  promised  to  pay  something,  but  that  it  promised  abso- 
lutely  to  pay  a  certain  sum  of  money  to  Wilkerson  or  to  his  order. 
That  is  not  shown ;  hence  the  instrument  is  not  one  which  could 
be  made  negotiable  by  any  form  of  words. 

In  determining  whether  paper  is  negotiable,  it  alone  can  be 
looked  to;  for  it  is  to  that  alone  which  persons  dealing  with  it 
must  and  have  the  right  to  look ;  and  were  it  shown  by  extrinsic 
evidence  that  the  bank  bought  from  Wilkerson  checks  on  another 
bank  for  which  it  agreed  to  pay  him  the  sum  of  $2,180,  and  that 
it  executed  the  instrument  sued  on  as  the  evidence  of  that  debt, 
still  we  would  be  compelled  to  deny  to  the  instrument  the  char- 
acter of  a  certificate  of  deposit  as  well  as  negotiability. 

It  may  seem  that  a  bank  that  would  put  out  such  paper  ought 
to  pay  it,  on  the  ground  that  the  form  it  gave  to  it  may  have 
misled  a  purchaser ;  but  such  considerations  can  have  no  weight 
in  determining  the  liability  of  parties,  for  all  persons  are  pre- 
sumed to  know  what  is  negotiable  paper  and  what  not ;  and  there 
are  no  rules  affecting  the  business  of  a  country  which  it  is  more 
necessary  to  rigidly  enforce  than  those  which  relate  to  mercantile 
paper.  The  paper  was  not  negotiable,  and  the  judgment  of  the 
court  below  will  be  reversed  and  judgment  will  be  here  rendered 
for  appellant.  ^ 

It  is  so  ordered.  \^    ^V 

Reversed  and  rendered. 


80  General  Requisites  ok  the  Contract 

must  be  payable  on  demand  or  at  a  fixed  or  determinable 

future  time.  §  3 — 3. 

GUdden  v.  Henry  (1885),  104  hid.  278,  34  Am.  Rep.  316. 

From  the  Henry  Circuit  Court. 

/.  H.  Mcllctt  and  E.  H.  Bundy,  for  appellant. 
/.  M.  Morris,  for  appellee. 

Zollars,  J.  For  value  and  before  maturity,  appellee  became 
the  owner  of  two  promissory  notes,  executed  by  appellant,  one 
of  which  is  as  follows : 

"$750.  Newcastle,  Ind.,  April  14,  1883. 

"Twelve  months  after  date  we,  or  either  of  us,  promise  to 
pay  to  the  order  of  George  W.  Nugen,  Jr.,  seven  hundred  and 
fifty  dollars,  with  interest  at  the  rate  of  seven  per  cent  per  annum 
after  date  until  paid,  and  attorney  fees,  value  received,  without 
any  relief  whatever  from  valuation  or  appraisement  laws,  with 
eight  per  cent  interest  from  maturity.  The  drawers  and  endorsers 
severally  waive  presentment  for  payment,  protest,  and  notice  of 
protest,  and  non-payment  of  this  note ;  and  further  expressly 
agree  that  the  payee,  or  his  assigns,  may  extend  the  time  of  pay- 
ment thereof  from  time  to  time  indefinitely,  as  he  or  they  may 
see  fit,  and  receive  interest  in  advance,  or  otherwise,  from  the 
maker  or  endorsers,  for  any  extension  or  forbearance  so  made. 
Negotiable  and  payable  at  the  Citizens'  State  Bank  of  Newcastle. 

"J.  W.  Glidden." 

So  far  as  is  material  here,  the  other  note  is  the  same.  Appel- 
lee brought  this  action  to  recover  the  amount  of  the  notes,  and  to 
foreclose  the  mortgage  given  by  appellant  to  secure  them. 

The  questions  for  decision  are  presented  by  the  ruling  of  the 
court  below  in  sustaining  a  demurrer  to  appellant's  answers,  and 
the  assignment  here  that  that  ruling  was  erroneous. 

If  the  notes  are  negotiable  as  inland  bills  of  exchange,  the 
demurrer  was  properly  sustained,  because  the  defences  set  up 
in  the  answers  are  such  as  can  not  be  made  as  against  the  bona 
fide  holder  of  such  paper.  We  are,  therefore,  met  at  the  threshold 
with  the  question,  are  these  notes  negotiable  as  inland  bills  of 
exchange?  In  section  5506,  R.  S.  1881,  it  is  provided  that  "Notes 
payable  to  order  or  bearer  in  a  bank  in  this  State  shall  be  nego- 
tiable as  inland  bills  of  exchange,  and  the  payees  and  endorsees 
thereof  may  recover,  as  in  case  of  such  bills." 


Glidden  v.  Henry  81 

This  statute  does  not  provide  what  shall  constitute  a  promis- 
sory note.  The  term  "note"  is  used,  as  it  was  then  and  still  is 
defined  by  the  authorities,  and  well  understood  under  the  law 
merchant  in  the  commercial  world.  Melton  v.  Gibson,  97  Ind. 
■58. 

The  sole  purpose  of  the  section  was  to  put  a  limitation  upon 
section  5503,  and  provide  for  commercial  paper  that  might  circu- 
late free  from  defences  in  favor  of  the  maker.  This  is  accom- 
plished by  the  provision,  that  if  the  note  be  payable  at  a  bank  in 
this  State,  it  shall  be  negotiable  as  inland  bills  of  exchange. 

The  note,  then,  with  the  addition  prescribed  by  the  statute, 
must  be  such  as  would  have  been  negotiable  under  the  law  mer- 
chant without  any  statutory  provision.  Are  the  notes  in  suit 
such  as  would  have  been  thus  negotiable?  A  standard  author 
has  said :  "To  learn  what  qualities  are  essential  to  a  negotiable 
promissory  note,  we  must  bear  in  mind  the  purpose  of  the  note, 
and  of  the  law  in  relation  to  it.  This  is  simply  that  the  note  may 
represent  money,  and  do  all  the  work  of  money  in  business  tran- 
sactions. For  this  purpose,  the,  first  requisite,  that,  indeed,  which 
includes  all  the  rest,  is  certainty.  This  means  certainty,  *  *  * 
Second,  as  to  the  person  or  persons  who  are  to  make  this  pay- 
ment, and  the  order  and  conditions  of  their  liability.  *  *  * 
Fourth,  as  to  the  time  when  payment  is  to  be  made.  *  *  * 
It  will  be  seen  that  the  law  endeavors  to  enforce,  define,  and  pro- 
tect all  these  certainties  as  far  as  possible."  1  Parsons  Notes 
and  Bills,  p.  30.  See,  also,  1  Daniel  Neg.  Inst.,  section  41.  This 
same  general  doctrine  of  the  books  is  recognized  by  this  and  all 
other  courts.  Walker  v.  Woollen,  54  Ind.  164  (23  Am.  R.  639). 
In  this  case  it  was  said:  "A  note,  in  order  that  it  be  negotiable") 
in  accordance  with  the  law  merchant,  must  be  payable  uncon-  > 
ditionally  and  at  all  events,  and  at  some  fixed  period  of  time,  I 
or  upon  some  event  which  must  inevitably  happen."  J 

Were  it  necessary,  we  might  cite  numerous  decisions  by  this 
court  asserting  the  general  doctrine  of  certainty  as  necessary  to 
a  promissory  note  under  the  law  merchant.  The  difficulty  is  not 
as  to  the  general  doctrine,  but  the  application  of  it  to  each  case 
as  it  arises. 

In  the  case  before  us,  all  parts  of  the  note  must  be  looked  to 
in  determining  the  quality  of  the  paper.  There  is  a  promise  to 
pay  in  twelve  months,  but  that  promise  is  not  certain  and  uncon- 
ditional. The  other  clause  is,  that  the  time  of  payment  may  be 
extended  indefinitely,  as  the  parties  may  agree.  From  an  inspec- 
tion of  the  note,   it   is   impossible  to  tell   when   it   may  mature, 


82  General  Requisites  of  the  Contract 

because  it  is  impossible  to  know  what  extension  may  have  been, 
or  may  hereafter  be,  agreed  upon.  No  definite  time  is  fixed,  nor 
is  the  maturity  of  the  note  dependent  upon  an  event  that  must 
inevitably  happen.  The  condition  is  not  that  something  may 
happen,  or  be  done,  that  will  mature  the  note  before  the  time 
named,  thus  leaving  that  time  as  fixed  and  certain,  if  the  thing 
do  not  happen,  or  be  not  done ;  but  the  condition  is  that  the  time 
named  may  be  displaced  by  another,  uncertain  and  indefinite  time, 
as  the  parties  may  agree. 

This  distinguishes  the  case  from  some  of  the  cases  cited  by 
appellee,  which  hold  that  so  long  as  a  definite  time  of  payment, 
as  fixed  in  the  note,  remains  fixed  and  certain,  the  note  retains 
its  negotiability,  although  by  certain  agreed  conditions  it  may 
be  matured  before  that  time.  The  case  here  is,  also,  distinguish- 
able from  another  class  of  cases  which  hold  that  the  time  of  pay- 
ment may  be  dependent  upon  an  event  that  must  inevitably 
happen,  such  as  the  death  of  the  maker,  the  coming  of  the  seasons, 
etc.  The  precise  question  involved  here  has  been  passed  upon  by 
the  Supreme  Courts  of  Iowa  and  Michigan,  and  in  each  case  it 
was  held  that  the  condition  destroyed  the  negotiability  of  the 
note.  Woodbury  v.  Roberts,  59  Iowa,  348  (44  Am.  R.  685)  ; 
SmitJi  v.  Van  Blarcom,  45  Mich.  371.  See,  also,  as  in  point,  Cook 
v.  Satterlce,  6  Cow.  108;  Gillilan  v.  Myers,  31  111.  525;  Costelo  v. 
Crowell,  127  Mass.  293  (34  Am.  R.  367). 

We  conclude  from  the  foregoing  that  the  notes  in  suit  are 
not  negotiable  under  the  statute  as  inland  bills  of  exchange,  and 
that,  therefore,  whatever  defences  appellant  might  have  set  up 
and  made  available  as  against  Nugen,  the  payee,  he  may  set  up 
and  make  available  as  against  appellee.     *     *     * 

The  judgment  is  reversed,  with  costs. 


INSTRUMENT  MAY  BE  PAYABLE  ON  OR  BEFORE  A  FIXED  TTME.  §  6 — 2. 

Mat  Us  on  v.  Marks  (1875),  31  Mich.  421,  18  Am.  Rep.  197. 

Newton  Foster,  for  plaintiff  in  error. 
Richards  &  Barnum,  for  defendants  in  error. 

Coolev,  J.  The  view  of  the  circuit  judge,  that  the  evidence 
introduced  on  the  part  of  the  defendant  tended  to  show  the  note 
in  suit  to  have  been  paid  by  Almanson  M.  Mattison,  appears  to  us 
untenable.     This  person,  it  appears,  had  a  mortgage  which  cov- 


V- 


Mattison  v.  Marks  83 

ered  the  same  premises  as  the  mortgage  which  secured  the  note 
in  suit.  His  mortgage  he  had  foreclosed,  and  had  become  the 
purchaser  of  the  property,  but  to  protect  his  title  it  was  necessary 
that  the  prior  mortgage  should  be  taken  care  of.  This  he  could 
only  do  by  purchasing  it,  or  paying  it  off;  but  whichever  form 
the  transaction  assumed,  he  would  be  entitled  to  be  subrogated 
to  the  rights  of  the  former  holder,  and  might  enforce  payment 
from  the  parties  who  were  responsible  therefor.  There  is  no 
ground  on  which  the  maker  and  endorser  of  the  note  secured  by 
the  first  mortgage  can  claim  that  the  taking  up  of  that  note  by 
a  second  mortgagee  with  whom  they  were  in  no  way  in  privity, 
can  operate  to  release  them  from  their  obligation  to  pay  it. 
Whether  the  second  mortgagee  takes  a  formal  assignment  or  not, 
such  a  transaction  makes  him  in  equity  an  assignee,  and  he  is 
entitled  to  resort  to  all  suitable  remedies  to  enforce  payment. 
Russell  v.  Howard,  2  McLean,  489 ;  Downer  v.  Fox,  20  Vt.  388. 
This  view  will  dispose  of  the  case,  unless  the  defendant  is 
correct  in  the  position  he  takes,  that  the  paper  sued  upon  is  not 
a  promissory  note.  If  it  is  not,  the  suit  must  fail,  because  the 
declaration  has  treated  it  as  such,  and  is  not  adapted  to  the  case 
of  any  other  special  contract.  The  objection  to  this  instrument 
is,  that  it  promises  to  pay  a  certain  sum  of  money  "on  or  before" 
a  day  named ;  and  this,  it  is  said,  is  not  a  promise  to  pay  on  a  day 
certain,  and  consequently  cannot  be  a  promissory  note.  We  are 
referred  to  Hubbard  v.  Mosely,  11  Gray,  170,  in  support  of  this 
view.  That  case  certainly  seems  to  support  the  position  of 
defendant,  and  it  is  to  be  regretted,  perhaps,  that  the  learned 
judge  who  delivered  the  opinion  did  not  deem  it  important  to 
present  more  fully  the  reasons  that  led  him  to  his  conclusions, 
instead  of  contenting  himself  with  a  simple  reference  to  the  gen- 
eral doctrine  that  a  promissory  note  must  be  payable  at  a  time 
certain.  It  seems  to  us  that  this  note  is  payable  at  a  time 
certain.  It  is  payable  certainly,  and  at  all  events,  on  a  day  par- 
ticularly named ;  and  at  that  time,  and  not  before,  payment  might 
be  enforced  against  the  maker,  jt  is  impossible  to  say  that  this 
paper  makes  the  payment  subject  to  any  contingency,  or  puts  it 
upon  any  condition^  The  legal  rights  of  the  holder  are  clear  and 
certain ;  the  note  is  due  at  a  time  fixed,  and  it  is  not  due  before- 
True,  the  maker  may  pay  sooner  if  he  shall  choose,  but  this 
option,  if  exercisedr  would  be  a  payment  in  advance  of  the  legal 
liability  to  pay,  and  nothing  more^  Notes  like  this  are  common 
in  commercial  transactions,  and  we  are  not  aware  that  their  nego- 
tiable quality  is  ever  questioned  in  business  dealings.     It  ought 


84  General  Requisites  of  the  Contract 

not  to  be  questioned  for  the  sake  of  any  distinction  that  does  not 
rest  upon  sound  reason,  and  we  can  discover  no  sound  reason  for 
the  distinction  here  insisted  upon. 

The  judgment  must  be  reversed,  with  costs,  and  a  new 
trial  ordered.  J^.^JU^.. 

Graves,  Ch.J.,  and  Campbell,  J.,  concurred. 


MAY    BE   PAYABLE   AFTER  THE   OCCURRENCE   OF   A    SPECIFIED    EVENT 
WHICH    IS  SURE   TO   HAPPEN,    THOUGH    THE  TIME   OF 

HAPPENING   BE   UNCERTAIN.  §6 3. 

J*.  Kclley  v.  Hemmingway  (1852),  13  III.  604. 

Farnsworth  and  Ferguson  and  T.  L.  Dickey,  for  appellant. 
Glover  &  Cook,  for  appellee. 

Treat,  C.J.  This  was  an  action  brought  by  Hemmingway 
against  Kelley  before  a  justice  of  the  peace,  and  taken  by  appeal 
to  the  Circuit  Court.  On  the  trial,  in  the  latter  court,  the  plain- 
tiff offered  in  evidence  an  instrument  in  these  words : 

"Castleton,  April  27th,  1844. 
"Due  Henry  D.  Kelley  fifty-three  dollars  when  he  is  twenty- 
one  years  old,  with  interest.  David  Kelley." 

On  the  back  of  which  was  this  indorsement. 

"Rockton,  May  21st,  1849. 
"Signed  the  within,  payable  to  Moses  Hemmingway. 

"Henry  Kelley." 

The  plaintiff  proved  that  the  payee  became  of  age  in  August, 
1849.  The  defendant  objected  to  the  introduction  of  the  instru- 
ment, because  it  was  not  negotiable,  but  the  court  admitted  it 
in  evidence,  and  rendered  judgment  for  the  plaintiff. 

Our  statute  makes  promissory  notes  assignable  by  indorse- 
ment in  writing,  so  as  absolutely  to  vest  the  legal  interest  in  the 
assignee.  Was  the  instrument  in  question  a  promissory  note? 
To  constitute  a  promissory  note,  the  money  must  be  certainly 
payable,  not  dependent  on  any  contingency,  either  as  to  event, 
or  the  fund,  out  of  which  payment  is  to  be  made,  or  the  parties 
by  or  to  whom  payment  is  to  be  made.  If  the  terms  of  an  instru- 
ment leave  it  uncertain  whether  the  money  wiJL ever  become 
payable,  it  cannot  be  considered  as  a  promissory  note.     Chitty  on 


Kelley  v.   Hemmingway  85 

Bills,  134.  Thus,  a  promise  in  writing  to  pay  a  sum  of  money 
when  a  particular  person  shall  be  married,  is  not  a  promissory 
note,  because  it  is  not  certain  that  he  will  ever  be  married. 
Pearson  v.  Ganct,  4  Mod.  242 ;  Bcardslcy  v.  Baldzvin,  2  Strange, 
1 151.  So  of  a  promise  to  pay  when  a  particular  ship  shall  return 
from  sea,  for  it  is  not  certain  that  she  will  ever  return.  Palmer 
v.  Pratt,  2  Bing.  185;  Coolidge  v.  Ruggles,  15  Mass.  387.  In  all 
such  cases,  the  promise  is  to  pay  on  a  contingency  that  may  never 
happen.  But  if  the  event  on  which  the  money  is  to  become  pay- 
able must  inevitably  take  place,  it  is  a  matter  of  no  importance 
how  long  the  payment  may  be  suspended.  A  promise  to  pay  a 
sum  of  money  on  the  death  of  a  particular  individual,  is  a  good 
promissory  note,  for  the  event  on  which  the  payment  is  made  to 
depend  will  certainly  transpire.  Colehan  v.  Cooke,  Willes,  393 ; 
S.  C.  2  Strange,  1217. 

In  this  case,  the  payment  was  to  be  made  when  the  payee 
should  attain  his  majority — an  event  that  might  or  might  not 
take  place.  The  contingency  might  never  happen,  and  therefore 
jjjg_jTioney  was  not  certainly  and  at  all  events  payable.  The 
instrument  lacked  one  of  the  essential  ingredients  of  a  promissory 
note,  and  consequently  was  not  negotiable  under  the  statute. 
The  fact  that  the  payee  lived  till  he  was  twenty-one  years  of  age 
makes  no  difference.  It  was  not  ajpromissory  note  when  made, 
a£d_i^ouhj_not  become  such  by  matter  ex  postjacto.  The  plain- 
tiff has  not  the  legal  title  to  the  instrument.  If  it  presents  a  cause 
of  action  against  the  maker,  the  suit  must  be  brought  in  the 
name  of  the  payee.  The  case  of  Goss  v.  Nelson  (1  Burr.  226),  is 
clearly  distinguishable  from  the  present.  There,  the  note  was 
made  payable  to  an  infant  when  he  should  arrive  at  age,  and  the 
day  when  that  was  to  be  was  specified.  The  court  held  the  instru- 
ment to  be  a  good  promissory  note,  but  expressly  on  the  ground 
that  the  money  was  at  all  events  payable  on  the  day  named, 
whether  the  payee  should  live  till  that  time,  or  die  in  the  interim ; 
and  it  was  distinctly  intimated,  that  the  case  would  be  very  differ- 
ent had  the  day  not  been  stated  in  the  note.  It  was  regarded  as 
an  absolute  promise  to  pay  on  the  day  specified,  and  no  effect  was 
given  to  the  words  that  the  payee  would  then  become  of  age. 

The  judgment  must  be  reversed.        Judgment  reversed. 


V^ 


86  General   Requisites  ok  the  Contract 


MUST  BE  PAYABLE  TO  ORDER  OR  TO  BEARER.  §  3 — 4. 

Zander  v.  New  York  Security  &  Trust  Co.   {1902),  78  N.   Y. 
Supp.  900;  Affirmed,  A  pp.  Div.  81  N.  Y.  Supp.  11 51,  with- 
out opinion;  Affirmed  178  N.   Y.  208. 

Action  by  Caroline  Zander  against  the  New  York  Security 
&  Trust  Company.     Demurrer  to  complaint  overruled. 

Wilson,  Barker  &  Wilson,  for  plaintiff. 
Homblower,  Byrne,  Miller  &  Potter,  for  defendant. 

Scott,  J.  It  is  alleged  by  the  complaint,  and  admitted  by  the 
demurrer,  that  on  or  about  July  11,  1901,  the  plaintiff  deposited 
with  the  defendant  the  sum  of  $500,  and  received  therefor  the 
following  certificate  or  receipt : 

"The  New  York  Security  and  Trust  Company,  New  York, 
July  11,  1901,  has  received  from  Caroline  Zander  the  sum  of  five 
hundred  dollars,  of  current  funds,  upon  which  the  said  company 
agrees  to  allow  interest  at  the  annual  rate  of  three  per  cent,  from 
this  date,  and  on  five  days'  notice  will  repay,  in  current  funds, 
the  like  amount,  with  interest,  to  the  said  Caroline  Zander  or  her 
assigns,  on  return  of  this  certificate,  which  is  assignable  only  on 
the  books  of  the  company." 

Then  followed  provisions  as  to  the  reduction  or  discontin- 
uance of  interest,  not  material  here. 

Plaintiff  always  remained  the  owner  of  the  certificate ;  has 
never  assigned  it,  or  any  part  thereof,  or  in  any  way  indorsed  or 
transferred  it,  or  any  interest  therein.  Before  August  9,  1901, 
she  lost  or  inadvertently  destroyed  the  certificate,  and,  though 
she  has  diligently  searched,  she  has  been  unable  to  find  it,  and 
on  August  9,  1901,  she  notified  defendant  of  the  loss  of  the 
certificate.  She  has  duly  demanded  of  defendant  the  issue  of  a 
new  certificate,  or  the  payment  of  the  amount  of  the  deposit.  The 
demurrer  is  stated  to  be  interposed  merely  for  the  purpose  of 
enabling  the  defendant  to  insist  that  the  plaintiff  shall  be  required 
to  give  the  security  specified  in  section  191 7,  Code  Civ.  Proc. 
That  section  refers  to  lost  negotiable  paper,  and  the  question 
which  presents  itself  is,  therefore,  whether  or  not  the  certificate 
of  deposit  given  by  defendant  is  negotiable.     Section  20,  c.  612, 


Zander  v.  New  York  Security  &  Trust  Co.  87 

Laws  1897,  known  as  the  "Negotiable  Instruments  Law,"  declares 
that  an  instrument,  to  be  negotiable,  "must  be  payable  to  order 
or  to  bearer,"  and  in  this  respect  is  merely  declaratory  of  the  law 
of  negotiable  paper  as  it  existed  before  the  passage  of  the  statute. 
The  papers  which  were  before  the  court  in  the  cases  principally 
relied  upon  by  defendant  conformed  to  the  foregoing  definition, 
and  in  each  case  the  decision  turned  upon  the  fact  that  the  lost 
receipts  were  payable  to  "order,"  which  circumstance  was  held  to 
render  them  negotiable  instruments,  and  to  require  that  indemnity 
be  given  before  judgment  upon  them  could  be  rendered.  Frank 
v.  [Vessels,  64  N.  Y.  155  ;  Read  v.  Bank,  136  N.  Y.  454,  32  N.  E. 
1083,  32  Am.  St.  Rep.  758.  The  receipt  or  certificate  in  the 
present  case_js  nnt  negotiable.  The  money  represented  by  it  is 
payable,  not  "to  order  or  bearer,"  but  to  the  plaintiff  "or  her 
assigns."  It  is  therefore  what  is  known  to  the  law  as  a  "non- 
negotiable  instrument."  In  an  action  upon  a  lost  or  destroyed 
instrument  of  this  description,  it  is  not  necessary  that  the  plaintiff 
should  give  or  tender  indemnity.  Wright  v.  Wright,  54  N.  Y. 
437;  Mills  v.  Bank,  28  Misc.  Rep.  251,  59  N.  Y.  Supp.  149.  The 
distinction  between  actions  on  negotiable  and  non-negotiable 
instruments,  and  the  reason  for  the  different  rules  respecting  the 
necessity  for  indemnity  in  such  actions,  are  too  obvious,  and  too 
clearly  stated  in  the  authorities  cited,  to  require  restatement  here. 
The  demurrer  admits  that  the  plaintiff  never  parted  with  or 
assigned  the  certificate,  and  that  it  has  been  lost  or  destroyed. 
Even  if  the  plaintiff  had  not  lost  or  destroyed  the  certificate,  and 
has  assigned  it,  the  defendant  would  assume  no  risk  in  paying  her 
the  amount  represented  thereby.  Section  1909  of  the  Code  of 
Civil  Procedure  provides  that,  except  in  the  case  of  a  negotiable 
instrument,  the  transfer  of  a  claim  or  demand  passes  an  instru- 
ment which  the  transferee  may  enforce  by  an  action  or  special 
proceeding,  or  interpose  as  a  defense  or  counterclaim,  in  his  own 
name,  as  the  transferror  might  have  done,  "subject  to  any  defense 
or  counterclaim,  existing  against  the  transferror,  before  notice  of 
the  transfer."  Payment  to  the  plaintiff  would  be  a  complete 
defense  to  any  claim  or  action  by  her  upon  the  certificate  of 
deposit,  and  equajly_bea  defense  of  any  action  or  claim  by  a  trans- 
fereejrpm  her,lfmade  before  notice  ot  the  transfer ;  and  it  does 
norappear,  and  is  not  suggested,  that  defendant  has  received  any 
notice  of  a  transfer  by  her.  The  demurrer  must  be  overruled, 
with  costs  and  an  extra  allowance  of  $25,  with  leave  to  the 
defendant  to  withdraw  the  demurrer  and  answer  within  20  days 
upon  payment  of  costs. 


88  General  Requisites  of  the  Contract 

Demurrer  overruled,  with  costs  and  extra  allowance,  with 
leave  to  withdraw  demurrer  and  answer  within  twenty  days  upon 
payment  of  costs. 


Westberg  v.  Chicago  Lumber  &  Coal  Co.  (1903),  117  Wis.  389. 

(See  page  460). 


DRAWEE  MUST  BE  NAMED  OR  OTHERWISE  INDICATED.      §  3 — 5. 

Watrous  v.  Halbrook  (1873),  39  Tex.  373. 

Appeal  from  Travis. 

The  facts  sufficiently  appear  in  the  opinion  of  the  court. 

Hancock  &  West,  for  appellant. 
Moore  &  Shelley,  for  appellee. 

Ogden,  P.J.  This  suit  was  brought  by  the  heirs  of  John 
S.  Storrs  against  the  estate  of  D.  E.  Watrous,  on  the  following 
instrument  of  writing,  viz. : 

"$2,771.62.  Montevallo,  June  1,  1858. 

"Ten  months  after  date  pay  to  the  order  of  John  S.  Storrs 
two  thousand  seven  hundred  and  seventy-one  and  62-100  dollars, 
value  received,  and  charge  to  the  account  of 

"D.  E.  Watrous. 

"To  ,  Mobile,  Ala/' 

The  petition  charged  that  for  a  valuable  consideration  from 
John  S.  Storrs  to  him  thereunto  moving,  said  Daniel  E.  Watrous 
executed  and  delivered  to  said  Storrs  the  instrument  of  writing 
above  set  out,  and  that  thereby  said  Watrous  undertook,  and 
bound  himself,  and  became  liable  to  pay  said  sum  therein 
specified. 

To  this  petition  the  defendants  filed  a  general  and  special 
demurrer,  which  were  both  overruled  by  the  court,  and  judgment 
was  rendered  for  the  plaintiffs,  and  the  defendants  took  their  bills 
of  exception  to  the  ruling  of  the  court,  and  brought  the  case 
here  by  appeal. 

The  only  question  now  presented  for  decision  is,  does  this 
instrument,  independent  of  any  allegations  of  ownership  for  a 


VVatrous  v.  Halkkook  89 

valuable  consideration,  or  promise  to  pay,  give  the  holder  any 
cause  of  action. 

This  instrument  is  not  a  promissory  note  in  its  ordinary 
form,  nor  can  it  be  treated  as  such,  since  there  is  no  promise 
to  pay  in  any  event.  The  instrument  is  directed  to  no  one,  and 
therefore  cannot  be  considered  a  draft  or  bill  of  exchange.  Had 
it  been  accepted  by  any  one,  that  acceptance  would  have  consti- 
tuted a  promise  to  pay  in  the  acceptor,  and  then  the  maker  might 
have  become  liable  as  surety  or  guarantor ;  but  as  there  is  no 
drawee  or  acceptor,  the  maker  cannot,  without  allegations  and 
proof  of  other  facts  setting  forth  and  establishing  his  liability, 
be  held  responsible.  The  instrument,  with  the  exception  of  the 
want  of  a  drawee,  is  in  the  ordinary  form  of  an  accommodation 
bill  or  draft,  on  which  the  maker  cannot  be  held  liable  until  after 
an  acceptance  or  non-acceptance.  We  think  the  instrument,  as 
it  is,  is  an  imperfect  bill  or  draft,  for  the  payment  of  which  no 
one  is  liable.  With  proper  averments,  showing  the  objects  and 
purpose  of  the  parties,  and  that  the  maker  intended  to  bind  him- 
self in  the  first  instance  to  pay  the  same,  he  might  possibly  be 
held  responsible  without  a  drawee  or  acceptor,  but  not  otherwise. 

We  can  see  no  material  difference  between  the  writing  here 
sued  on  and  the  one  in  Ball  v.  Allen,  15  Mass.  433,  in  which  the 
court  says :  "But  the  mere  possession  of  a  paper  drawn  in  the 
form  of  an  order,  there  being  no  drawee  in  existence,  we  think 
cannot  entitle  the  possessor  to  an  action  in  anv  form." 

The  same  doctrine  may  be  drawn  from  Fetro  v.  Reynolds, 
9  Exch.  414.  and  in  Davis  v.  Clark,  47  Eng.  C.  L.  177.  From 
these  authorities,  and  the  reason  of  law  governing  instruments 
of  this  or  the  like  character,  we  are  clearly  of  the  opinion  that 
the  petition  in  this  case  did  not  set  out  a  good  cause  of  action, 
and  that  the  court  erred  in  overruling  defendants'  special  demur- 
rer to  the  same.  We  think  the  demurrer  should  have  been  sus- 
tained and  the  plaintiffs  permitted  to  amend  their  pleadings,  that, 
if  desired,  they  might,  by  proper  averments  and  proof,  establish 
the  liability  of  the  maker  or  drawer  in  the  first  instance,  without 
an  acceptance  or  non-acceptance. 

The  judgment  of  the  district  court  is  reversed  and  the  cause 
remanded. 

Reversed  and  remanded. 


yersea  a 


<*-*-tr 


90  General  Requisites  of  the  Contract 


PROVISION    GIVING    THE    HOLDER   AN    ELECTION    TO    REQUIRE   SOME- 
THING TO  BE  DONE  IN  LIEU  OF  PAYMENT  OF  THE  MONEY.  §  7 — 4. 

Hodges  v.  Shulcr  (i860),  22  N.  Y.  114. 

Appeal  from  the  Supreme  Court.  The  action  was  against  the 
defendants  as  indorsers  of  the  following  instrument  or  note: 

"RUTLAND  AND  BURLINGTON  RAILROAD  COMPANY. 

•'No.  253.  $1,000. 

"Boston,  April  1,  1850. 

"In  four  years  from  date,  for  value  received,  the  Rutland 
and  Burlington  Railroad  Company  promises  to  pay  in  Boston,  to 
Messrs.  W.  S.  and  D.  W.  Shuler,  or  order,  $1,000,  with  interest 
thereon,  payahle  semi-annually,  as  per  interest  warrants  hereto 
attached,  as  the  same  shall  become  due ;  or  upon  the  surrender 
of  this  note,  together  with  the  interest  warrants  not  due  to  the 
treasurer,  at  any  time  until  six  months  of  its  maturity,  he  shall 
issue  to  the  holder  thereof  ten  shares  in  the  capital  stock  in  said 
company  in  exchange  therefor,  in  which  case  interest  shall  he 
paid  to  the  date  to  which  a  dividend  of  profits  shall  have  been 
previously  declared,  the  holder  not  being  entitled  to  both  interest 
and  accruing  profits  during  the  same  period. 

"T.  Follett,  President.      Sam.  Henshaw,  Treasurer." 

At  the  time  the  suit  was  brought  there  was  an  unpaid  interest 
warrant  attached,  and  which  was  attached  at  the  time  of  indorse- 
ment. 

The  answer  of  the  defendants  put  in  issue  none  of  the  alle- 
gations in  the  complaint  except  those  in  respect  to  presentment, 
notice  and  protest. 

It  was  admitted  on  the  trial  that  on  the  4th  of  April,  1854. 
a  notary  public  in  Boston,  at  the  request  of  the  Bank  of  Com- 
merce of  that  city  (to  which  bank  the  plaintiff  had  sent  for  col- 
lection the  note  mentioned  in  the  complaint  in  this  action),  did 
present  the  note  at  the  office,  in  Boston,  of  the  treasurer  of  the 
Rutland  and  Burlington  Railroad  Company,  the  place  of  business 
in  Boston  of  said  company,  and  there  demanded  payment  of  the 
same  of  the  treasurer,  which  was  refused  ;  and  thereupon  notified 
the  defendants  thereof  by  depositing,  on  the  same  day,  in  the 
postoffice  in  Boston,  a  written  notice,  of  which  the  following  is  a 
copy : 


Hodges  v.  Shuler  91 

"City  of  Boston,  April  4,  1854. 

To  Messrs.  W.  S.  and  D.  W.  Shuler  : 

"Please  take  notice  that  a  promissory  note  made  by  S.  Hen- 
shaw,  treasurer,  for  $1,000,  dated  April  1st,  1850,  payable  in  four 
years,  in  favor  of  yourselves,  and  indorsed  by  you,  has  been  pre- 
sented by  me  to  the  office  of  the  treisurer,  and  payment  being 
duly  demanded  was  refused,  whereupon,  by  direction  of  the 
holder,  the  same  has  been  protested,  and  payment  thereof  i;. 
requested  of  you. 

"Adolphus  Bates,  Notary  Public." 

This  notice  was  inclosed,  and  directed  to  the  defendants  at 
Amsterdam,  N.  Y.,  their  place  of  residence,  and  the  post  office 
at  which  they  received  their  letters ;  and  the  notice  was  received 
by  them  in  due  course  of  mail,  and  the  post  mark  thereon  was 
"Boston,  April  5." 

It  was  further  admitted  that  for  some  time  immediately  pre-  J 
ceding  the  date  of  the  note,  the  defendants  were  engaged  as  con- 
tractors in  building  the  road  of  the  said  railroad  company,  and 
on  or  about  the  date  of  said  note  received  from  the  company,  in 
satisfaction  of  their  contract  and  work,  the  said  note  together 
with  four  other  notes,  each  of  the  same  date  and  amount,  and  in 
every  respect  corresponding  with  said  note,  except  that  the  num- 
bers of  all  the  said  notes  marked  thereon,  were  different  each 
from  the  other ;  that  the  transfer  by  said  defendants  of  the  note 
mentioned  in  said  complaint  was  in  the  city  of  Boston,  and  State 
of  Massachusetts,  and  that  each  of  said  notes  was  transferred 
by  said  defendants  shortly  after  the  date  of  the  said  notes,  in  the 
same  manner  as  the  note  set  forth  in  the  complaint ;  and  that  Sam. 
Henshaw  (whose  name  is  signed  as  treasurer  to  the  note  men- 
tioned in  said  complaint)  never  signed  as  treasurer  or  otherwise, 
any  note  in  which  the  said  defendants  were  named  as  payees, 
except  the  notes  above  mentioned. 

The  court  decided  that  the  plaintiff  was  entitled  to  recover 
against  the  defendants,  and  gave  judgment  accordingly.  The 
defendants  excepted  to  the  decision  as  follows: 

1st.  The  court  erred  in  deciding  that  the  defendants  were 
liable  upon  the  instrument  set  forth  in  the  complaint  by  their 
indorsement. 

2d.  The  court  erred  in  deciding  that  the  notice  of  demand 
and  refusal  to  pay,  served  upon  the  defendants,  was  sufficient  to 
charge  the  defendants  as  indorsers. 


92  General  Requisites  of  the  Contract 

3d.  The  court  erred  in  deciding  that  the  plaintiff  was 
entitled  to  recover  in  the  action. 

The  Supreme  Court  affirmed  the  judgment,  and  the  defend- 
ants appealed  to  this  court. 

John  K.  Porter,  for  the  appellant. 
John  B.  Gale,  for  the  respondent. 

Wright,  J.  The  single  question  is,  whether  the  defendants 
can  be  held  as  indorsers.  It  is  insisted  that  they  cannot,  for  the 
reasons,  1st.  That  the  instrument  set  out  in  the  complaint,  is 
neither  in  terms  nor  legal  effect  a  negotiable  promissory  note,  but 
a  mere  agreement ;  the  indorsement  in  blank  of  the  defendants, 
operating,  if  at  all,  only  as  a  mere  transfer,  and  not  as  an  engage- 
ment to  fulfill  the  contract  of  the  railroad  company  in  case  of  its 
default ;  and  2d.  That  if  it  be  a  note,  the  notice  of  its  dishonor 
was  insufficient  to  charge  the  defendants  as  indorsers. 

Whether  the  blank  indorsement  of  the  defendants  imports 
any  binding  contract,  depends  on  the  law  of  Massachusetts ;  in 
which  state  it  is  to  be  assumed,  from  the  facts  in  the  case,  that 
the  original  instrument  and  indorsement  were  made.  But  the 
law  of  Massachusetts  does  not  differ  from  that  of  this  state  or 
of  England  in  any  particular  material  to  the  present  inquiry.  In 
Massachusetts  there  has  been  apparently  a  relaxation  of  the  com- 
mon law  rule  so  far  as  to  extend  the  remedy  against  indorsers  to 
notes  payable  absolutely  in  a  medium  other  than  cash  ;  but  in  all 
other  respects  the  legal  rules  applicable  to  negotiable  paper,  are 
the  same  in  that  state  as  in  our  own. 

The  instrument  on  which  the  action  was  brought  has  all  the 
essential  qualities  of  a  negotiable  promissory  note.  It  is  for  the 
unconditional  payment  of  a  certain  sum  of  money,  at  a  specified 
time,  to  the  payee's  order.  It  is  not  an  agreement  in  the  alter- 
natiyej  to  pay  in  money  or  railroad  stock.  It  was  not  optional 
with  the  makers  to  pay  in  money  or  stock  and  thus  fulfill  their 
promise  in  either  of  two  specified  ways ;  in  such  case,  the  promise 
would  have  been  in  the  alternative.  The  possibility  seems  to 
have  been  contemplated  that  the  owner  of  the  note  might,  before 
its  maturity,  surrender  it  in  exchange  for  stock,  thus  canceling  it 
and  its  money  promise;  Fut  that  promise  was  nevertheless  abso- 
lute and  unconditional,  and  was  as  lasting  as~the  note  itself!  Tn 
no  event  could  the  holder  require  money  and  stock.  It  was  only 
upon  a  surrender  of  the  note  that  he  was  to  receive  stock ;  and 
the  money  payment  did  not  mature  until  six  months  after  the 


Hodges  v.  Shuler  93 

holder's  right  to  exchange  the  note  for  stock  had  expired.  We 
are  of  the  opinion  that  the  instrument  wants  none  of  the  essential 
requisites  of  a  negotiable  promissory  note.  It  was  an  absolute 
and  unconditional  engagement  to  pay  money  on  a  day  fixed :  and 
although  an  election  was  given  to  the  promisees,  upon  a  surrender 
of  the  instrument  six  months  before  its  maturity,  to  exchange  it 
for  stock,  this  did  not  alter  its  character,  or  make  the  promise  in 
the  alternative,  in  the  sense  in  which  that  word  is  used  respecting 
promises  to  pay.  The  engagement  of  the  railroad  company  was 
to  pay  the  sum  of  $1,000  in  four  years  from  date,  and  its  promise 
could  only  be  fulfilled  by  the  payment  of  the  money,  at  the  day 
named. 

We  are  next  to  inquire  whether  the  notice  was  sufficient.  A 
notice,  that,  in  terms,  or  by  necessary  implication  or  reasonable 
intendment,  informs  the  indorser  that  the  note  has  berjjrnp_diip1 
and  has  been  presented  to  the  maker,  and  payment  refused,  is 
sufficient.  The  party  to  whom  the  notice  is  addressed  should  not 
be  misled  by  an  indefinite  or  uncertain  description  of  the  note 
and,  from  the  imperfection  of  the  notice  itself,  be  unable  to  deter- 
mine to  what  particular  note  it  refers.  A  notice  which  omits  an 
essential  feature  of  the  note,  or  misdescribes  it,  is  an  imperfect 
one,  but  is  not  necessarily  invalid.  It  is  invalid  only  when  it  fails 
to  give  that  information  which  it  would  have  given  but  for  its 
particular  imperfection ;  and  even  in  case  the  notice  in  itself  be 
defective,  if,  from  evidence  aliunde  of  the  attendant  circum- 
stances, it  is  apparent  that  the  indorser  was  not  deceived  or  mis- 
led as  to  the  identity  of  the  dishonored  note,  he  will  be  charged. 
A  note  is  well  described  when  its  maker,  payee,  date,  amount,  and 
time  and  place  of  payment,  are  stated:  and  when  a  notice  sets 
forth  these  particulars,  with  reasonable  accuracy,  together  with 
the  facts  of  presentment  and  dishonor,  it  cannot  be  rendered 
invalid  by  showing  aliunde  that  notes  similar  as  to  parties,  date, 
amount,  and  time,  and  place  of  payment  were  outstanding,  and 
were  only  distinguishable  from  each  other  by  their  numbering. 

This  notice,  which  was  dated  at  Boston,  informed  the  indors- 
ers  that  a  promissory  note  made  by  S.  Henshaw,  treasurer,  for 
$1,000,  dated  April  ist,  1850,  payable  in  four  years,  in  favor  of 
themselves,  and  indorsed  by  them,  had  been  presented  on  the  4th 
of  April,  1854,  at  the  office  of  the  treasurer,  and  payment  being 
duly  demanded,  was  refused.  The  notice  contained  no  allusion 
to  the  number  of  the  note,  and  described  it  as  made  bv  "S.  Hen- 
shaw, Treasurer."  The  date,  amount,  payees,  indorsees  and  time, 
and,  inferentially,  the  place  of  payment,  were  accurately  described. 


94  General  Requisites  of  the  Contract 

But  it  is  urged  that  there  was  a  failure  to  charge  the  defendants 
as  indorsers,  for  the  reason  that  there  was  a  misdescription  as  to 
the  maker,  and  the  notice  contained  no  reference  to  the  number 
by  which  the  note  was  designated  and  distinguished  from  four 
others  of  a  similar  description,  given  and  transferred  by  the 
defendants  simultaneously.  I  think  both  of  the  reasons  are  with- 
out force,  and  that  the  notice,  construed  in  the  light  of  its  attend- 
ing and  surrounding  circumstances,  was  sufficient.  At  least, 
from  the  contents  of  the  notice  itself,  and  the  extrinsic  facts 
admitted  in  the  case,  it  was  a  question  not  of  law,  but  of  fact^ 
whether  knowledge  was  actually  brought  home  to  the  indorsers 
of  the  dishonor  of  the  note  in  suit ;  and  that  question  of  fact 
has  been  found  against  the  defendants  in  the  court  below.  Exam- 
ine, for  a  moment,  the  objections  to  the  notice,  separately.  It 
describes  the  note  to  have  been  made  by  "S.  Henshaw,  treasurer." 
This  was  a  misdescription,  as  it  was,  in  fact,  made  by  the  rail- 
road company,  Henshaw  acting  as  its  agent,  and  signing  the 
instrument  in  his  capacity  as  treasurer.  But  did  this  misdescrip- 
tion deceive  or  mislead  the  defendants  as  to  the  identity  of  the 
dishonored  paper?  It  is  very  apparent  that  it  did  not.  Henshaw 
never  signed,  as  treasurer  or  otherwise,  any  note  in  which  the 
defendants  were  named  as  payees,  except  the  five  notes  given 
to  the  defendants  on  the  ist  April,  1850,  for  $1,000  each,  payable 
in  four  years  from  date,  for  labor  performed  as  contractors  in 
constructing  the  road  of  the  company.  It  is  admitted  that  these 
five  notes  were  given  in  satisfaction  of  their  contract  with  the 
railroad  company.  They  knew  its  financial  officer,  the  treasurer, 
and  that  the  five  notes  dated  April  ist,  1850,  became  due  and 
payable  in  Boston  on  the  4th  April,  1854;  and  they  are  to  be 
presumed  not  to  have  indorsed  any  like  notes  of  the  company, 
or  have  had  any  indorsement  outstanding  on  any  note,  except 
the  five,  which  resembled  them  in  any  one  important  feature. 
Upon  the  receipt,  therefore,  by  due  course  of  mail,  of  the  notice 
dated  and  mailed  at  Boston  on  the  4th  April,  1854,  and 
describing  the  note  accurately  as  to  date,  amount,  payees,  and 
time  and  place  of  payment,  and  giving  the  name  of  one  of  its 
signers,  whom  the  defendants  knew  was  the  treasurer  of  the 
railroad  company,  they  were  fully  informed  that  such  notice 
referred  to  one  of  the  five  notes.  At  all  events,  it  was  a  question 
of  fact,  whether  the  information  had  been  actually  given  to  them, 
and  whether  they  were  reasonably  apprised  of  the  particular 
paper  upon  which  they  were  sought  to  be  charged. 

Secondly,  as  to  the  objection  founded  on  an  omission  in  the 


Hodges  v.  Shuler  95 

notice  to  designate  the  number  of  the  note  sued  on.  It  seems 
that  the  note  designated  in  its  margin  as  No.  253,  and  the  notice 
omitted  to  describe  it  by  the  number.  But  this  did  not  render  the 
notice  per  se  fatally  defective.  The  number  was  not  a  part  of 
the  note,  and  there  was  a  complete  description  of  it  without  the 
number.  It  cannot  be,  that  when  a  notice  actually  describes  every 
essential  feature  of  a  dishonored  note,  such  notice  may  be  invali- 
dated, by  an  indorser  showing,  aliunde,  that  there  were  similar 
notes  indorsed  by  him  simultaneously,  and  distinguishable  only 
by  their  different  numbers.  All  that  the  holder  of  a  note  is  bound 
to  do  is,  to  give  the  indorser  a  complete  description  of  it,  and  if 
from  such  description  it  cannot  be  identified,  it  is  the  fault  or 
misfortune  of  the  indorser  in  having  indorsed  several  notes  alike 
in  every  essential  feature.  Showing,  in  this  case,  that  there  were 
four  other  notes  given  to  the  defendants  by  the  railroad  company, 
on  the  1st  April,  1850,  and  shortly  afterwards  transferred  by  them 
by  indorsement,  like  the  one  in  suit  except  that  they  were  differ- 
ently numbered,  did  not,  as  matter  of  law,  stamp  the  notice  as  a 
defective  and  insufficient  one.  Indeed,  these  extrinsic  facts  were 
quite  immaterial,  without  showing  further  that  the  four  notes 
were  transferred  to  persons  other  than  the  holder  of  the  note  in 
suit,  and  that  they  were  outstanding  in  April,  1854.  The  latter 
facts  were  not  to  be  presumed,  with  the  view  of  invalidating  the 
notice,  or  imposing  the  onus  upon  the  plaintiff  to  identify,  by 
extraneous  evidence,  the  note  in  suit  to  the  defendants  as  the  one 
referred  to  in  the  notice  as  dishonored. 

I  am  of  the  opinion  that  the  action  was  well  brought  against 
the  defendants  as  indorsers  of  a  negotiable  promissory  note,  and 
that  the  notice  of  its  dishonor  was  sufficient. 

The  judgment  of  the  Supreme  Court  should  be  affirmed. 

All  the  judges  agreed  that  the  instrument  in  suit  was  a  prom- 
issory note;  Denio  and  Welles,  Js.,  dissented  on  the  ground 
that  the  notice  of  non-payment  was  insufficient  in  omitting  the 
number  upon  the  margin  of  the  note. 

Judgment  affirmed. 


-yrv.     ^&-»^aa*~ 


9(j  General  Requisites  of  the  Contract 

PRESENCE  OF  SEAL  ON    INSTRUMENT.  §8 — 4. 

See  Conine  v.  The  Junction  and  Breakwater  R.  R.  Co.,  p.  $3. 

Brozen  v.  Jordhal  (1884),  32  Minn.  i$$t  50  Am.  Rep.  560. 

Plaintiff  brought  this  action  in  the  district  court  for  Free- 
born County,  as  holder  of  the  following  instrument : 

'Township  of  Manchester,  Feb'y  23,  1881. 
"$120.    Six  months  after  date,  (or  before,  if  made  out  of  the 
sale  of  Drake's  horse  hay  fork  and  hay  carrier,)  I  promise  to  pay 
James  B.  Drake  or  bearer  one  hundred  and  twenty  dollars. 

"Negotiable  and  payable  at  the  Freeborn  County  Bank, 
Albert  Lea,  Minn.,  with  ten  per  cent,  interest  after  maturity  until 
paid. 

"Ole  J.  Jordahl.     [Seal.] 
"Witness:    J.  Williamson."  [Seal.] 

At  the  trial  before  Farmer,  J.,  the  plaintiff,  having  intro- 
duced evidence  that  he  bought  the  note  from  Williamson  for 
value,  before  maturity,  in  good  faith  and  without  notice  of  any 
•  iefence  to  it,  admitted  that  the  note  was  obtained  from  defendant 
by  Williamson  by  fraud,  and  that  as  between  those  parties  the 
note  was  without  consideration  and  fraudulent.  The  court  there- 
upon directed  a  verdict  for  defendant;  a  new  trial  was  denied, 
and  the  plaintiff  appealed. 

Dr.  R.  P.  Hibbs  and  John  Whytock,  for  appellant. 
Lovely  &  Morgan,  for  respondent. 

Gilfillan,  C.J.  (Dickinson.  J.,  because  of  illness,  took  no 
part  in  the  decision.)  The  defendant  executed  an  instrument  in 
the  form  of  a  negotiable  promissory  note,  except  that  after  and 
opposite  the  signature  were  brackets,  and  between  them  the  word 
"seal,"  thus,  "[  Seal. )"  The  question  in  the  case  is,  is  this  a  nego- 
tiable promissory  note,  so  as  to  be  entitled  to  the  peculiar  privi- 
leges and  immunities  accorded  to  commercial  paper?  The  rule 
that  anjnstrument  under  seal,  though  otherwise  in  the  form  of~a 
promissory  note,  is  not  (certainly~when  executed  by  a  natural 
person,  however  it  may  be  when  executed  by  a  corporation)  a_' 
novnUxh}e  nntp  pntitWI  7o__^iLcJi_privileges  and  immunities,  is' 
imiyersally  recognized,  and  is  not  disputed  in  this  state.  But  the 
appellant   contends   that   merely   placing   upon    an    instrument    a 


Leavitt  v.  Putnam  97 

scroll  or  device,  such  as  the  statute  allows  as  a  substitute  for  a 
common-law  seal,  without  any  recognition  of  it  as  a  seal  in  the 
body  of  the  instrument,  does  not  make  it  a  sealed  instrument. 
Undoubtedly,  where  there  is  a  scroll  or  device  upon  an  instru- 
ment, there  must  be  something  upon  the  instrument  to  show  that 
the  scroll  or  device  was  intended  for  and  used  as  a  seal.  The 
scroll  or  device  does  not  necessarily,  as  does  a  common-law  seal, 
establish  its  own  character.  Such  words  in  the  testimonium 
clause  as  "witness  my  hand  and  seal,"  or  "sealed  with  my  seal," 
would  establish  that  the  scroll  or  device  was  used  as  a  seal.  No 
such  reference  in  the  body  of  the  instrument  was  necessary  in 
the  case  of  a  common-law  seal.  Goddard's  Case,  2  Coke  Rep.  5a; 
7  Bac.  Abr.  (Bouvier's  Ed.)  244.  Nor  is  there  any  reason  to 
require  it  in  the  case  of  the  statutory  substitute,  if  the  instrument 
anywhere  shows  clearly  that  the  device  was  used  as  and  intended 
for  a  seal.  It  would  be  difficult  to  conceive  how  the  party  could 
express  that  the  device  was  intended  for  a  seal,  more  clearly  than 
by  the  word  "seal,"  placed  within  and  made  a  part  of  it.  This 
was  an  instrument  under  seal. 

Order  affirmed. 


V- 


INDORSEMENT  AFTER  DISHONOR   MAKES  INSTRUMENT   PAYABLE  ON 
DEMAND    AS    TO    SUCH    INDORSER.  §  9 2. 

Leavitt  v.  Putnam  (1850),  3  N.  Y.  494,  53  Am.  Dec.  322. 

Appeal  from  the  superior  court  of  the  city  of  New  York, 
where  the  action  was  against  Putnam  and  others,  as  the  indorsers 
of  a  promissory  note.  The  plaintiff  was  nonsuited  on  the  trial, 
and  after  judgment  he  appealed  to  this  court. 

J.  IV.  Gerard,  for  appellant. 
S.  Sherwood,  for  respondent. 

Hurlbut,  J.  On  the  29th  day  of  August,  1844,  Messrs.  J. 
W.  &  R.  Leavitt  made  their  note  for  $1570.52,  payable  to  the 
order  of  T.  Putnam  &  Co.  (the  defendants)  eight  months  after 
date.  A  few  days  after  the  maturity  of  the  note,  the  defendants 
indorsed  it  as  follows:  "Pay  the  within  to  A.  Thacher,  value 
received,  May  21,  1845.  T.  Putnam  &  Co."  Thacher  indorsed 
without  recourse,  and  delivered  the  note  for  a  valuable  considera- 
tion to  the  American  Exchange  Bank,  in  whose  behalf  this  action 
is  brought. 


98  General  Requisites  of  the  Contract 

On  the  trial  the  defendants  urged,  among  other  grounds  of 
objection  to  the  plaintiff's  recovery,  that  the  defendants'  indorse- 
ment was  in  effect  a  new  draft  payable  to  Thacher  only,  and  not 
negotiable,  so  that  no  action  could  be  maintained  upon  it  in  the 
name  of  the  plaintiff.  In  this  they  were  sustained  by  the  court, 
and  the  plaintiff  was  nonsuited. 

The  other  objections  taken  by  the  defendants  on  their  motion 
for  a  nonsuit  were  not  considered  by  the  court  below,  and  under 
the  circumstances  of  the  case  can  not  be  noticed  on  this  appeal ; 
so  that  the  only  thing  for  us  to  consider  is,  whether  the  indorse- 
ment of  a  note  made  after  due,  differs  from  one  made  before 
maturity  in  respect  to  its  negotiability?  It  was  conceded  on  the 
argument  that  no  express  authority  could  be  found  sustaining  the 
distinction  upon  which  the  decision  of  the  superior  court  was 
based,  but  it  was  urged  that  the  defence  could  be  sustained  upon 
the  principle  that  a  dishonored  note  loses  its  mercantile  character, 
and  its  indorsement  becomes  an  original  contract  which  must  be 
made  expressly  negotiable  in  terms,  or  it  could  not  be  held  to 
possess  the  character  of  negotiability.  There  is  unquestionably _a. 
difference  between  the  indorsement  of  a  note  after  due  and  one 
while  it  is  running  to  maturity,  but  this  relates  only  to  a  single 
point  arising  from  the  necessity  of  the  case,  to  wit,  the  time  of 
payment,  which,  in  the  latter  indorsement,  is  fixed  at  a  future  day 
by  the  express  agreement  of  the  parties,  while  in  the  former,  it  is 
declared  by  law  to  be  within  a  reasonable  time,  upon  demand. 
But  in  all  other  respects  the  contract  is  the  same  as  an  indorse- 
ment in  the  usual  course  of  trade ;  and  it  is  difficult  to  perceive 
how  the  single  difference  referred  to  can  at  all  affect  the  negotia- 
bility of  the  indorsement.  A  bill  or  note  does  not  lose  its  nego- 
tiable character  by  being  dishonored.  If  originally  negotiable  it 
may  still  pass  from  hand  to  hand  ad  infinitum  until  paid  by  the 
drawer.  Moreover  the  indorser  after  maturity  writes  in  the  same 
form  and  is  bound  only  upon  the  same  condition  of  demand  upon 
the  drawer  and  notice  of  non-payment  as  any  other  indorser. 
Thus  the  paper  preserves  its  mercantile  existence  and  retains  the 
main  attributes  of  a  proper  bill  or  note,  and  circulates  as  such 
in  the  commercial  community.  Exceptions  to  a  general  rule  affect- 
ing so  important  and  numerous  a  class  of  transactions  as  the  one 
under  consideration  must  be  productive  of  great  inconvenience, 
and  will  not  be  indulged  except  for  urgent  reasons ;  and  nothing 
has  been  made  to  appear  in  the  argument  or  seems  to  exist  in  the 
case,  which  warrants  the  court  in  treating  the  ordinary  indorse- 
ment of  a  dishonored  bill  or  note  as  without  the  law  merchant  and 


Gordon  v.  Lansing  State  Bank  99 

not  negotiable.  While  it  was  questioned  whether  such  a  note  was 
negotiable,  and  whether  the  indorser  was  chargeable  except  upon 
the  usual  condition  of  demand  and  notice,  there  was  perhaps  rea- 
son enough  to  sustain  the  decision  of  the  court  below.  But  since 
both  the  note  and  its  indorsement,  by  a  long  course  of  decisions, 
have  been  treated  as  within  the  law  merchant  in  respect  to  their 
main  attributes,  the  indorsement  ought  to  be  regarded  as  negoti- 
able to  the  same  extent  as  an  indorsement  before  maturity.  The 
latter  follows  the  nature  of  the  original  bill  and  is  equally  nego- 
tiable. (Edie  v.  The  East  India  Co.  2  Burr.  1216;  Mil  ford  v. 
Wolcoti,  1  Ld.  Raym.  574 ;  Allzvood  v.  Hazelton,  2  Baylies'  S.  C. 
R.  457;  Bishop  v.  Dexter,  2  Conn.  R.  419;  Berry  v.  Robinson,  9 
John.  121.) 

The  note  in  the  present  case  was  upon  its  face  transferable, 
and  its  character  in  respect  to  negotiability  could  only  have  been 
changed  by  an  indorsement  containing  express  words  of  restric- 
tion. The  defendants'  indorsement  was  a  full  one,  containing  the 
name  of  the  person  in  whose  favor  it  was  made,  but  omitting  the 
words  "or  order,"  the  legal  effect  of  which  was,  nevertheless,  to 
make  the  note  payable  to  him  or  his  order,  and  his  endorsement 
therefore  was  effectual  to  transfer  the  note  to  the  plaintiff.  (Chitty 
on  Bills,  136;  Story  on  Prom.  Notes,  §  139.) 

I  am  of  opinion  that  the  judgment  of  the  superior  court 
should  be  reversed,  and  a  new  trial  awarded. 

Judgment  reversed. 


payee  must  be  indicated  with  reasonable  certainty. 

§  10—6. 
Gordon  v.  Lansing  State  Bank  (1903),  jjj  Mich.  143. 

Error  to  Ingham ;  Wiest,  J.  Submitted  December  2,  1902. 
(Docket  No.  125.)     Decided  May  12,  1903. 

Assumpsit  by  John  R.  Gordon  against  the  Lansing  State  Sav- 
ings Bank  to  recover  the  balance  of  a  deposit.  From  a  judgment 
for  plaintiff,  defendant  brings  error.    Affirmed. 

Charles  F.  Hammond,  for  appellant. 
Russell  C.  Ostrander,  for  appellee. 

Moore,  J.  This  case  was  tried  by  the  circuit  judge  without 
a  jury.  At  the  request  of  the  defendant,  he  made  a  finding  of 
facts,  which  is  as  follows: 


100  General  Requisites  of  the  Contract 

"Monday  morning,  December  9,  1901,  at  about  9  o'clock, 
there  was  presented  at  the  bank  of  defendant  at  the  City  of  Lan- 
sing for  payment  the  following  check,  made  upon  the  printed 
form  of  check  supplied  by  defendant  to  its  patrons,  and  signed  by 
plaintiff,  viz. : 

"  'Lansing,  Mich.,  .  . . .,  190.  .     No 

"  'Lansing  State  Savings  Bank  of  Lansing. 

"  'Pay  to  the  order  of  

Nine  Hundred  and  Seventy  Dollars.    $970.00. 

"John  R.  Gordon." 

"The  check  was  indorsed  by  Charles  P.  Downey,  and  was 
presented  by  an  employe  of  Mr.  Downey,  and  cash  was  paid  at 
the  time  of  its  presentation. 

"The  plaintiff  had  been  a  depositor  at  defendant's  bank  at 
periods  for  three  or  four  years,  and  at  the  opening  of  the  bank  on 
the  morning  of  December  9,  1901,  his  balance  or  credit  upon  the 
books  of  the  bank  was  $3.40,  but  during  the  day  $2,997.50  was 
added  to  plaintiff's  credit.  The  day  defendant  cashed  the  check 
plaintiff  was  at  the  bank,  and  was  informed  that  the  check  for 
$970  had  been  cashed  by  payment  to  Mr.  Downey,  and  he  then 
notified  defendant  he  would  not  accept  that  check  as  a  voucher 
for  the  money  paid. 

"December  14,  1901,  plaintiff  prepared  and  presented  to 
defendant  his  check,  payable  to  himself,  for  $970,  being  the 
amount  he  claimed  to  then  have  on  deposit  in  the  bank.  Payment 
on  this  check  was  refused  by  defendant  upon  the  ground  that 
plaintiff  had  no  funds  in  the  bank." 

The  Circuit  Judge  rendered  a  judgment  in  favor  of  the  plain- 
tiff for  $970  and  interest.  The  case  is  brought  here  by  writ  of 
error. 

Two  questions  are  discussed  by  counsel :  First,  the  effect  of 
not  dating  the  check ;  second,  has  the  check  a  payee  ?  We  do  not 
deem  it  necessary  to  discuss  the  first  question.  As  to  the  second 
question,  it  will  be  noticed  the  drawer  of  the  check  did  not  name 
a  payee  therein,  nor  did  he  leave  a  blank  space  where  the  name  of 
a_  payee  might  be  inserted,  nor  did  he  name  an  impersonal  payee. 
In  the  case  of  Mcintosh  v.  Lytle,  26  Minn.  336  (3  N.  W.  983), 
the  court  used  the  following  language  : 

"A  check  must  name  or  indicate  a  payee.  Checks  drawn  pay- 
able to  an  impersonal  payee,  as  to  'Bills  Payable'  or  order,  or  to  a 
number  or  order,  are  held  to  be  payable  to  bearer,  on  the  ground 
that  the  use  of  the  words  'or  order'  indicates  an  intention  that  the 
paper  shall  be  negotiable,  and  the  mention  of  an  impersonal  payee, 


Gordon  v.  Lansing  State  Bank  101 

rendering  an  indorsement  by  the  payee  impossible,  indicates  an 
intention  that  it  shall  be  negotiable  without  indorsement, — that  is, 
that  it  shall  be  payable  to  bearer.  So,  when  a  bill,  note,  or  check 
is  made  payable  to  a  blank  or  order,  and  actually  delivered  to  take 
effect  as  commercial  paper,  the  person  to  whom  delivered  may 
insert  his  name  in  the  blank  space  as  payee,  and  a  bona  fide  holder 
may  then  recover  on  it. 

"These  cases  differ  essentially  from  the  one  at  bar.  In  the 
latter  case  the  person  to  whom  delivered  is  presumed,  in  favor  of 
a  bona  fide  holder,  to  have  had  authority  to  insert  a  name  as  payee. 
In  the  former  cases  the  instrument  is,  when  it  passes  from  the 
hands  of  the  maker,  complete,  in  just  the  form  the  parties  intend. 
But  in  this  case  there  is  neither  a  blank  space  for  the  name  of  the 
payee,  indicating  authority  to  insert  the  payee's  name,  nor  is  the 
instrument'  made  payable  to  an  impersonal  payee,  indicating  a  fully 
completed  instrument.  It  is  claimed  that  the  words  'on  sight' 
are  such  impersonal  payee.  They  were  inserted,  however,  for 
another  purpose, — to  fix  the  time  of  payment, — and  not  to  indi- 
cate the  payee.  It  is  clearly  the  case  of  an  inadvertent  failure 
to  complete  the  instrument  intended  by  the  parties.  The  drawer 
undoubtedly  meant  to  draw  a  check,  but,  having  left  out  the 
payee's  name,  without  inserting  in  lieu  thereof  words  indicating 
the  bearer  as  payee,  it  is  as  fatally  defective  as  it  would  be  if  the 
drawee's  name  were  omitted." 

See,  also,  Rush  v.  Haggard,  68  Tex.  674  (5  S.  W.  683)  ; 
Prewitt  v.  Chapman,  6  Ala.  86;  Brown  v.  Gilnian,  13  Mass.  160; 
Rich  v.  Starbuck,  51  Ind.  87;  Norton,  Bills  &  N.  (3d  Ed.)  p.  59, 
and  notes ;  1  Daniel,  Neg.  Inst.   §  102. 

The  case  differs  from  the  one  at  bar  in  some  respects,  but  the 
important  part  of  the  decision  is  that  a  payee  is  necessary  to  make 
a  complete  instrument,  and,  even  though  the  maker  of  the  check 
may  have  intended  to  name  a  payee,  if  he  has  not  in  fact  done  so 
the  check  is  incomplete.  In  the  case  at  bar  the  failure  to  name  a 
payee  was  not  an  oversight,  if  we  may  judge  from  what  Mr.  Gor- 
don did,  as  will  appear  more  in  detail  later. 

Our  attention  has  been  called  to  Crutchly  v.  Mann,  5  Taunt. 
529.     In  this  case  the  bill  of  exchange  was  made  payable  to  the 

order  of  The  court  found  that,  under  the 

facts  shown,  the  conclusion  was  irresistible  that  the  name  was 
filled  in  with  the  consent  of  the  drawer.  The  same  case  was  pre- 
viously reported  in  2  Maule  &  S.  90  (Crutchley  v.  Clarance), 
where,  as  the  case  then  stood,  it  appeared  the  bill  of  exchange  had 
been  sent  out,  the  defendant  leaving  a  blank  for  the  name  of  the 


102  General  Requisites  of  the  Contract 

payee.  One  of  the  judges  was  of  the  opinion  that  the  defendant, 
by  leaving  the  blank,  undertook  to  be  answerable  for  it,  when  filled 
up  in  the  shape  of  a  bill  of  exchange;  another  judge  was  of  the 
opinion  that  it  was  as  though  the  defendant  had  made  the  bill  pay- 
able to  bearer;  while  the  third  judge  was  of  the  opinion  that  the 
issuing  of  the  bill  in  blank  without  the  name  of  the  payee  was  an 
authority  to  a  bona  fide  holder  to  insert  the  name. 

In  the  case  of  Harding  v.  State,  54  Ind.  359,  a  promissory 
note  was  drawn,  leaving  a  blank  space  for  the  name  of  the  payee ; 
and  it  was  held  : 

"  'So  the  name  of  the  payee  may  be  left  blank,  and  this  will 
authorize  any  bona  fide  holder  to  insert  his  own  name.'  Pars. 
Notes  &  B.  33." 

In  the  case  of  Brummel  v.  Enders,  18  Grat.  873,  promissory 
notes,  blank  as  to  the  names  of  the  payees,  has  been  put  in  the 
hands  of  an  agent  to  be  sold  for  the  benefit  of  the  makers.  The 
agent  sold  them,  at  a  greater  discount  than  the  legal  rate  of  inter- 
est, to  purchasers  who  did  not  know  they  were  sold  for  the  benefit 
of  the  makers.  At  the  time  of  the  sale  the  names  of  the  pur- 
chasers were  inserted,  either  by  the  purchasers  or  by  the  agent, 
in  the  blank  left  for  the  payee.  When  the  notes  were  sued,  the 
makers  pleaded  usury.  The  court,  following  the  cases  already 
cited,  held  that  any  bona  fide  holder  of  a  bill  or  note  which  is 
blank  as  to  the  name  of  the  payee  may  insert  his  own  name,  and 
thus  acquire  all  the  rights  of  the  payee. 

It  will  be  observed  that  the  case  at  bar  differs  from  all  of 
these  cases.  As  before  stated,  not  only  did  Mr.  Gordonfail  to 
insert  the  name  of  a  payee,  or  to  leave  a  blank  where  the  name  of 
the  payee  might  be  inserted,  but  he  did  more;  he  drew  a  line 
through  the  blank  space,  making  it  impossible  for  any  one  else  to 
insert  therein  a  name,  indicating  very  clearly  that  he  _not  only. 
declined  to  name  a  payee,  but  intended  to  mak-p  it  impossible  for 
any  one  else  to  do  so.  Had  Mr.  Gordon  issued  a  check  otherwise 
perfect,  but  with  the  blank  space  for  the  amount  of  the  check 
unfilled,  and  delivered  it  to  a  third  person,  it  would  be  presumed 
the  third  person  was  given  authority  to  fill  the  blank  space.  But 
had  he,  instead  of  leaving  the  space  a  blank,  filled  it  by  drawing  a 
line  through  it,  would  any  one  say  the  third  person  might  then 
insert  a  sum  of  money  in  that  space?  If  not,  upon  what  principle 
may  the  name  of  a  payee  be  inserted  when  the  space  was  filled  in 
the  same  way,  or  upon  what  theory  may  it  be  presumed  there  was 
an  impersonal  payee  when  the  maker  has  not  made  the  check 
payable  to  cash,  or  some  other  impersonal  payee?     In  order  to 


Gordon  v.  Lansing  State  Bank  103 

construe  the  check  as  a  complete  instrument,  we  must  read  into  it 
an  intention  not  only  not  expressed  by  its  language,  but  contrary" 
to  the  act  of  the  maker.  ~TKe~check,  as  it  appears  today,  is  without 
any  payee.  The  record  is  silent  in  relation  to  whom  it  was  deliv- 
ered, or  whether  the  person  who  presented  it  at  the  bank  or  the 
person  whose  indorsement  it  bears  was  a  bona  fide  holder. 

Judgment  is  affirmed. 
Hooker,  C.  J.,  concurred  with  Moore,  J.  ~vr"  vLi,VJVA^- 

Carpenter,  J.  I  regret  that  I  cannot  concur  in  the  opinion  V*^*x^ 
of  my  Brother  Moore.  I  agree  with  him  that  the  check  in  ques- 
tion is  not  governed  by  the  authorities  which  hold  that,  where  a 
blank  is  left  for  the  insertion  of  the  name  of  a  payee,  the  instru- 
ment is  to  be  treated  as  payable  to  bearer.  I  cannot  agree,  how- 
ever, that  the  case  of  Mcintosh  v.  Lytle,  26  Minn.  336  (3  N.  W. 
983),  is  controlling.  That  case  resembles  this  in  many  particu- 
lars. There  is,  however,  a  difference  which,  in  my  judgment, 
renders  the  reasoning  of  that  case  inapplicable.  The  fact  that  the 
plaintiff  in  the  case  at  bar  used  the  ordinary  blank,  and  drew  a 
line  through  the  space  intended  for  the  name  of  the  payee,  pre- 
vents our  assuming,  as  did  the  court  there, — and  its  decision  was 
based  on  this  assumption, — that  it  is  "the  case  of  an  inadvertent 
failure  to  complete  the  instrument  intended  by  the  parties."  The_ 
instrument  under  consideration  is  obviously  complete,  in  just  the 
form  the  maker  intended. 

In  my  judgment,  the  authorities  which  hold  a  check  payable 
to  the  order  of  an  impersonal  payee  to  be  valid  and  negotiable 
control  this  case.  I  quote  from  the  case  of  Willets  v.  Bank,  2 
Duer,  at  page  129: 

"One  of  the  checks  was  payable  to  the  order  of  1658,  the 
other  three  to  the  order  of  bills  payable  ;  and,  as  the  required  order 
could  not  in  either  case  possibly  be  given,  the  checks,  unless  trans- 
ferable by  delivery,  were  payable  to  no  one,  and  were  void  upon 
their  face.  The  law  is  well  settled  that  a  draft  payable  to  the 
order  of  a  fictitious  persoryinasmuch  as  a  title  cannot  be  given  by 
an  indorsement,  is,  in  judgment  of  law,  payable  to  bearer.  Vere 
v.  Lewis,  3  Term  R.  183;  Minet  v.  Gibson,  Id.  481;  Gibson  v. 
Minet,  1  H.  Black.  569,  affirmed  in  the  House  of  Lords.  And  it 
seems  to  us  quite  manifest  that  in  principle  these  decisions  embrace 
the  present  case.  At  any  rate,  the  bank,  by  certifying  the  checks 
as  good,  is  estopped  from  denying  that  they  were  valid  as  drafts 
upon  the  funds  of  the  maker,  and,  consequently,  were  payable  to 


104  'General  Requisites  of  the  Contract 

bearer.  The  giving  of  such  a  certificate,  if  otherwise  construed, 
would  be  a  positive  fraud." 

In  Mechanics'  Bank  v.  Straiton,  3  Abb.  Dec.  269,  a  check 
payable  to  bills  payable  or  order  was  held  payable  to  bearer,  the 
court  saying: 

"By  naming  the  persons  to  whose  order  the  instrument  is 
payable,  the  maker  manifests  his  intention  to  limit  its  negotiability 
by  imposing  the  condition  of  indorsement  upon  its  first  transfer. 
But  no  such  intention  is  indicated  by  the  designation  of  a  ficti- 
tious or  impersonal  payee,  for  indorsement  under  such  circum- 
stances is  manifestly  impossible ;  and  words  of  negotiability,  when 
used  in  connection  with  such  designations,  are  capable  of  no  rea- 
sonable interpretation  except  as  expressive  of  an  intention  that  the 
bill  shall  be  negotiable  without  indorsement, — i.  e.,  in  the  same 
manner  as  if  it  had  been  made  payable  to  bearer." 

We  must  decide  that  the  check  in  the  case  at  bar,  like  those 
in  the  cases  cited,  is  either  altogether  void,  or  is  transferable  by 
delivery.  I  submit  that  we  should  follow  those  cases;  and  decide 
that  it  is  transferable  by  delivery.  To  quote  the  language  of  Lord 
Ellenborough,  in  Cruchley  v.  Clarance,  2  Maule  &  S.  90: 

"As  the  defendant  has  chosen  to  send  the  bill  [check]  into 
the  world  in  this  form,  the  world  ought  not  to  be  deceived  by  his 
acts." 

This  view  of  the  case  compels  me  to  notice  the  fact  that  the 
check  under  consideration  is  not  dated.  According  to  the  weight 
of  authority,  this  omission  does  not  invalidate  it.  See  Zane,  Banks, 
§  152;  2  Daniel,  Neg.  Inst.,  §  15*77;  Norton,  Bills  &  N.  (3d  Ed.), 
p.  405,  note. 

I  think  the  judgment  of  the  court  below  should  be  reversed, 
and  a  judgment  entered  in  this  court  for  the  defendant. 

Grant,  J.,  concurring  with  Carpenter,  J. 

Montgomery,  J.,  did  not  sit.  „  - 


Shipman  v.  Bank  105 

instrument  payable  to  order  of  fictitious  person.     §  ii — 3. 

Shipman  v.  Bank  (1891),  126  N.  Y.  318,  22  Am.  St.  Rep.  821. 

The  nature  of  the  action  and  the  facts,  so  far  as  material,  are 
stated  in  the  opinion. 

William  Allen  Butler,  for  appellant. 
Elihu  Root,  for  respondents. 

O'Brien,  J.  This  appeal  brings  here  for  review  a  judgment 
of  over  $223,000,  recovered  by  the  plaintiffs  against  the  defendant, 
upon  a  state  of  facts  fully  found  and  stated  by  the  referee  in  his 
report,  and  in  regard  to  which  there  is  little,  if  any,  serious  dispute 
between  the  parties^  The  form  of  the  action  is  for  the  recovery 
of  a  sum  of  money  which,  it- is  claimed,  the  defendant  undertook, 
when  accepting  the  plaintiffs'  deposits,  to  pay  to  them  or  upon 
their  order  and  direction.  It  has  been  found,  and  is  admitted  on 
both  sides,  that  on  the  7th  of  April,  1884,  the  plaintiffs  had  upon 
deposit  to  their  credit  with  the  defendant  the  sum  of  $14,499:08. 
That  from  this  date  to  the  close  of  business,  on  the  3d  day  of 
October,  1888,  the  defendant  had  and  received,  to  and  for  the  use 
of  the  plaintiffs,  various  other  sums  of  money  deposited  from  time 
to  time  between  these  dates  by  the  plaintiffs  with  the  defendant 
amounting  in  the  aggregate  to  six  million,  two  hundred  and  thir- 
teen thousand,  five  hundred  and  eighty-six  dollars  and  seventy-one 
cents.  That  between  the  7th  day  of  April,  1884,  and  the  close  of 
business,  on  the  3d  day  of  October,  1888,  the  defendant  paid  ,to 
the  order  of  the  plaintiff  on  their  checks,  drawn  against  the  bal- 
ance above  stated  and  the  deposits  subsequently  made,  various 
sums  of  money  amounting  in  the  aggregate  to  six  million,  thirty 
thousand  and  forty  dollars  and  twenty-nine  cents.  This  would 
leave  a  balance  due  to  the  plaintiffs  by  the  defendant  of  one  hun- 
dred and  ninety-eight  thousand  and  forty-five  dollars  and  fifty 
cents,  which,  with  interest,  is  the  sum  that  constitutes  the  subject 
of  this  controversy.  The  defendant  alleged  in  its  answer  that  all 
moneys  deposited  with  it  by  the  plaintiffs  were  fully  paid  upon 
their  order  and  by  checks  drawn  upon  it  by  them,  and  in  order 
to  meet  and  disprove  the  plaintiffs'  claim  that  there  was  due  to 
them  from  the  defendant  at  the  close  of  business,  on  the  3d  day 
of  October,  1888,  the  sum  of  one  hundred  and  ninety-eight  thou- 
sand and  forty-five  dollars  and  fifty  cents,  the  defendant  produced 
twenty-seven  checks,  all  signed  by  the  plaintiffs  and  drawn  upon 


106  General  Requisites  of  the  Contract 

the  defendant,  directing  the  payment  of  sums  respectively  aggre- 
gating the  total  balance  above  mentioned,  and  to  recover  which 
the  plaintiffs  brought  the  action.  That  the  defendant  actually  paid 
these  checks  is  not  disputed,  and  the  case  is  thus  made  to  turn 
upon  the  question  whether  they  are  available  to  the  defendant  as_ 
lawful  vouchers,  establishing  the  fact  that  the  moneys  claimed 
by  the  plaintiffs  were  paid  out  by  the  defendant  upon  these  checks. 
Recording  to  the  order  and  direction  of  the  plaintiffs.  A  clear 
understanding  of  the  question  involved  requires  a  brief  statement 
of  the  facts  and  circumstances  under  which  the  twenty-seven 
checks  were  signed  by  the  plaintiffs  and  presented  to  and  paid  by 
the  defendant.  The  pjajntiffs  are  a  well  known  law  firm  in  the 
city  of  New  York,  engaged  in  an  extensive  business  which,  in 
its  organization,  had  a  department  known  as  the  "Real  Estate 
Department."  In  this  branch  of  their  business  they  examined 
titles  for  clients  who  were  lenders  of  money  on  bond  and  mortgage, 
carried  out  and  completed  such  loans,  and  occasionally  examined 
titles  for  clients  who  were  purchasers  of  real  estate.  One  of  the 
members  of  the  firm  had  general  charge  of  this  department,  but 
the  details  of  the  business  and  the  execution  of  the  work  was 
entrusted  to  subordinates.  One  James  E.  Bedell,  a  lawyer  who 
had  been  admitted  to  the  bar  in  the  year  1868,  and  had  been  in 
the  employ  of  the  plaintiffs  since  1873,  assisting  in  the  real  estate 
department,  was,  in  the  year  1881,  practically  put  in  charge  of 
the  work  of  this  department  under  the  direction  of  the  member 
of  plaintiffs'  firm  who  had  general  charge.  Bedell  was  an  experi- 
enced and  capable  lawyer.  The  plaintiffs  believed  that  he  was 
honest  and  trustworthy,  and,  prior  to  the  discovery  of  the  very 
extraordinary  crimes  in  connection  with  these  checks,  they  had 
no  reason  whatever  to  suspect  or  distrust  him.  During  the  period 
covered  by  the  transactions  in  question  the  plaintiffs  employed  one 
Dodge,  a  competent  expert  bookkeeper,  who  took  charge  of  the 
plaintiffs'  books  and  acted  as  cashier.  He  kept  the  account 
between  the  plaintiffs  and  defendant.  He  filled  out  all  the  checks 
and  made  all  the  entries  in  the  check-books,  and  the  checks,  when 
paid  by  defendant,  came  to  him  with  the  pass-book,  which  was 
balanced  by  the  defendant,  and  the  vouchers,  including  the  checks 
in  question,  returned  with  the  book,  from  time  to  time,  at  frequent 
intervals.  The  course  of  the  business  in  which  the  checks  in  ques- 
tion were  issued  was  substantially  as  follows :  The  plaintiffs'  client 
who  wished  to  make  a  loan  through  them,  furnished  the  money, 
which  went  directly  into  the  plaintiffs'  general  bank  account  with 
the  defendant.    Against  the  sum  to  be  loaned  and  thus  put  to  the 


Shipman  v.  Bank  107 

plaintiffs'  credit  checks  were  rilled  up  by  Dodge,  the  cashier,  from 
a  written  statement  made  by  Bedell,  showing  the  amount  required 
to  pay  liens  or  charges  on  the  property  to  be  mortgaged,  the 
amount  of  the  plaintiffs'  charges,  and  any  other  items  entering 
into  the  transaction,  and  the  balance  to  be  paid  the  borrower. 
After  filling  up  the  checks  Dodge  would  take  the  check-book, 
with  the  filled-up  checks,  to  a  member  of  the  firm  for  signature, 
showing  him  the  entries  in  the  check-book  of  the  deposit  of  the 
client's  money  and  the  statement  of  Bedell  as  to  the  payments  to 
be  made,  and  thereupon  the  check  would  be  signed  by  the  plain- 
tiffs, in  the  name  of  the  individual  partner  to  whom  it  was  pre- 
sented by  Dodge,  the  firm  name  being  engraved  on  each  check 
and  the  individual  signature  underwritten.  Dodge  would  then 
take  away  the  check-book  and  deliver  the  several  checks  to  Bedell. 
In  this  manner  the  twenty-seven  checks  in  question  were  entrusted 
by  the  plainiffs  to  Bedell,  their  clerk,  for  delivery  to  the  payees, 
respectively,  therein  named,  who  were  in  good  faith  believed  by 
the  plaintiffs  to  be  real  persons,  entitled  to  receive  the  amount  of 
said  checks,  respectively,  from  them  or  their  clients.  The  defend- 
ant paid  the  checks  to.  a  third  person,  upon  an  indorsement  there- 
on of  the  payees  named,  forged  by  Bedell,  who  converted  the  pro- 
ceeds to  his  own  use.  The  names  of  the  payees_written  in  sixteen 
of  the  twenty-seven  checks,  drawn  for  sums  aggregating  $112,- 
818.72,  were_not  the_  names  of  reaLbut  fieititjous,  persona.  The 
remaining  eleven  checks,  drawn  for  sums  aggregating  $85,227.08, 
were  made  payable^  to  the  order  of  real  persons,  whose  indorse- 
ments  were_in  every  case  forged  by  Bedell.  Only  three  of  the 
checks,  drawn  for  less  than  $2,400,  were  paid  to  Bedell  by  defend- 
ant. All  the  others  were  deposited,  from  time  to  time,  in  various 
other  banks  in  the  city  of  New  York,  and  the  money  thereon 
received  by  Bedell  from  these  banks,  and  the  checks  all  ultimately 
paid  by  defendant  through  the  exchanges  in  the  clearing  house, 
in  the  due  and  regular  course  of  business.  As  to  the  sixteen 
checks  payable  to  the  order  of  ficititious  persons,  the  plaintiffs 
were  led  by  fraudulent  contrivances  and  representations  on  the 
part  of  Bedell,  the  details  of  which  appear  in  the  record,  to  believe, 
and  they  did  in  fact  believe,  until  the  discovery  of  the  forgeries, 
that  such  payees  were  real  persons ;  and  as  to  all  the  checks,  the 
plaintiffs  did  not  intend  that  any  of  them  should  go  into  circulation 
or  should  be  paid  by  the  defendant  otherwise  than  through  a 
delivery  to  and  indorsement  by  the  payee  named  therein.  The 
checks  were  paid  in  every  case  by  the  defendant,  without  any 
inquiry  as  to  the  genuineness  of  the  indorsements,  and  in  reliance 


108  General  Requisites  of  the  Contract 

upon  the  responsibility  of  the  parties  presenting  the  same,  and  not 
in  reliance  upon  anything  done  or  forborne  by  the  plaintiffs, 
except  that  they  were  signed  by  them.  There  is  no  elaim  that,  at 
the  time  the  defendant  paid  the  checks,  it  had  any  knowledge  or 
suspicion  or  reason  to  suspect  that  any  of  the  indorsements  were 
forged,  or  that  any  of  the  names  were  fictitious,  or  that  there  was 
any  fraud  or  irregularity  in  respect  to  any  of  the  checks  or  any 
indorsement  or  writing  thereon.  The  plaintiffs'  confidence  in 
Bedell  and  his  representation  of  them  in  all  their  dealings  with 
clients,  concerning  loans  on  real  estate,  continued  without  inter- 
ruption, until  one  of  these  clients,  upon  examining  a  fabricated 
mortgage  sent  to  him  by  Bedell,  had  his  attention  arrested  by  the 
faintness  of  the  impression  of  the  seal  of  the  register  on  the  certi- 
ficate of  record  that  he  sent  the  mortgage  to  the  register's  office 
for  a  better  sealing.  This  led  to  the  discovery  of  all  the  frauds, 
forgeries,  fabrications  of  documents,  attestations  and  official  certi- 
ficates carried  on  by  him  in  the  plaintiff's'  office  for  more  than  four 
years.  The  plaintiffs  did  not  discover  that  the  indorsements  on 
the  checks  had  been  forged,  or  that  the  amount  thereof  had  not 
been  paid  to  them  or  their  order,  until  nearly  four  months  after 
May  22,  1888,  which  was  the  date  of  the  last  check  so  forged. 
On  the  discovery  of  the  facts  and  before  the  commencement  of 
this  action,  the  plaintiffs  tendered  the  checks  to  the  defendant, 
and  demanded  that  the  amount  of  the  same  should  be  paid  to 
them,  or  credited  in  their  account  by  the  defendant,  which  tender 
and  demand  was  refused. 

The  various  deposits  of  money  made  from  time  to  time  by 
the  plaintiffs  with  the  defendant  created  the  relation  of  debtor  and 
creditor,  and  the  law  implies  a  contract  on  the  part  of  the  defend- 
ant to  disburse  the  money  standing  to  the  plaintiffs'  credit  only 
upon  their  order  and  in  conformity  with  their  directions.  The 
defendant  is  not  entitled  to  charge  against  the  plaintiffs'  account 
any  sums  as  payments  unless  they  have  been  made  to  such  persons 
as  the  plaintiffs  directed.  Such  payments  as  were  made  without 
the  order  of  the  plaintiffs  of  their  funds  by  the  defendant,  afford 
to  it  no  protection  when  called  upon  by  the  plaintiffs  to  account 
for  the  money  deposited.  Payments  made  upon  forged  indorse- 
ments are  at  the  peril  of  the  bank_unless  it  can  claim  protection 
upon  some  principle  of  estoppel  or  by  reason  of  some  negligence" 
char^linTe~Fo  the  depositor^  These  rules  are  so  familar  and  so 
well  established  and  illustrated  by  the  adjudged  cases  that  a  bare 
reference  to  them  is  all  that  is  needful  here.  (Crazvford  v.  West 
Side  Bank,  100  N.  Y.  53 :  JEtna  Nat.  Bank  v.  Fourth  Nat.  Bank, 


Shipman  v.  Bank  109 

46  id.  86;  Corn  Exchange  Bank  v.  Nassau  Bank,  91  id.  80; 
Phoenix  Bank  v.  Rislcy,  m  U.  S.  125;  Bank  of  British  North 
America  v.  Merchants'  i\rat.  Bank,  91  N.  Y.  106;  Marine  Bank  v. 
Fulton  Bank,  2  Wallace,  256;  First  Nat.  Bank  v.  Whitman,  94 
U.  S.  347 ;  Citizens'  Nat.  Bank  v.  Importers  &  Traders'  Bank, 
119  N.  Y.  195.) 

The  statement  of  the  account  made  by  the  defendant  to  the 
plaintiffs  from  time  to  time,  the  balancing  of  the  bank  pass-book 
and  the  return  of  the  same  to  the  plaintiffs  with  the  vouchers, 
including,  as  they  did,  the  checks  in  controversy,  with  the  forged 
indorsements  thereon,  constitute  no  obstacle  to  the  maintenance 
of  this  action  by  the  plaintiffs  as  they  were  ignorant  of  the  facts 
and  circumstances  under  which  the  checks  were  issued  and  put  in 
circulation.  An  account  thus  stated  can  always  be  opened  upon 
proof  of  mistake  or  fraud,  and  the  only  effect  of  the  plaintiffs' 
silence  as  to  the  correctness  of  the  account  rendered  by  the  defend- 
ant is  to  putupon  them,  in  this  action,  the  burden  of  showing  that 
the  account,  as  stated,  was  the  result  of  fraud  or  mistake,  a  burden 
which  they  have  fully  assumed  and  met,  as  the  referee  has  found. 

It  is  urged  that  the  plaintiffs  owed  the  duty  to  the  defendant 
of  examining  the  vouchers  returned  to  them  with  the  balanced 
pass-book  from  time  to  time,  and  that  a  careful  examination  of 
the  same  would  have  disclosed  the  fact  that  the  money  was 
received  upon  the  checks  by  Bedell  and  his  forgeries  thus  detected. 
The  duty  of  examining  the  returned  vouchers  was  delegated  by 
the  plaintiffs  to  their  cashier  and  bookkeeper,  who  was  a  faithful 
and  competent  person  for  many  years  in  plaintiffs'  employ.  The 
referee  found  as  a  fact,  from  all  the  circumstances  of  the  case, 
that  the  failure -to  discover  the  forgeries  sooner  than  they  were 
was  not,  in  any  case,  caused  by  any  neglect  on  the  part  of  the 
jlaTntiff s  or  their  cashier,  of  any  duty  that  the  plaintiffs  owed  to 
the  defendant.  The  examination~of~the  checks  would,  of  course, 
enabkTthe  plaintiffs  to  ascertain  whether  their  own  signature  was 
genuine,  and  whether  the  amount,  date  or  name  of  the  payee  had 
been  changed,  but  would  not  necessarily  enable  them  to  detect  the 
forgery  of  the  payee's  name.  The  law  imposed  no  duty  upon  the 
plaintiffs  to  do  more  than  they  did  to  ascertain  whether  the 
indorsements  on  the  checks  were  genuine.  The  defendant's  con- 
tract was  to  pay  the  checks  only  upon  a  genuine  indorsement. 
The  drawer  is  not  presumed  to  know,  and  in  fact  seldom  does 
know,  the  signature  of  the  payee.  The  bank  must,  at  its  own  peri^ 
determine  that  question.  It  has  the  opportunity,  by  requiring 
identification  when  the  check  is  presented,  or  a  responsible  guar- 


110  General  Requisites  of  the  Contract 

anty  from  the  party  presenting  it,  of  ascertaining  whether  the 
indorsement  is  genuine  or  not.  When  it  returns  thejdieck  to  the 
depositor,  as  evidence  of  a  payment  made  by  his  direction,  the 
Tattpr  Jiasj-he  right  to  assume  that  the  bank  has  ascertained  the 
fact  to  bejthat  the  indorsement  is  genuine.  (Weisser  v.  Denison, 
10  N.  Y.  68;  Welsh  v.  German  American  Bank,  -3  id.  424;  Frank 
v.  Chemical  Nat.  Bank,  84  id.  209;  First  Nat.  Bank  v.  Whitman, 
(;4  U.  S.  347;  Leather  Mfg.  Bank  v.  Morgan,  117  id.  107.)  The 
plaintiffs  committed  the  examination  of  the  vouchers  when 
returned  from  the  bank  to  a  faithful  and  competent  cashier,  who 
failed  to  discover  the  forged  indorsements.  There  is  not  the 
slightest  reason  to  believe  that  if  the  checks  had  been  examined 
by  one  of  the  plaintiffs  themselves  the  results  would  have  been 
any  different.  We  are  unable  to  see  that  anything  was  done  or 
omitted  by  the  plaintiffs  with  respect  to  the  examination  of  the 
indorsements  upon  the  vouchers  that  excuses  the  defendant  from 
its  obligation  to  pay  upon  a  genuine  order  only.  Nor  can  we 
perceive  anything  done  or  omitted  by  the  plantiffs  in  the  general 
conduct  and  management  of  their  business,  or  in  the  employment 
of  and  confidence  reposed  in  Bedell  that  estops  them  from  alleging 
that  the  twenty-seven  checks  were  paid  without  their  authority. 
Whether  the  plaintffs  were  guilty  of  any  negligence  in  that 
regard  was  a  question  of  fact  and  the  finding  is  that  they  were, 
in  so  far  as  the  defendant  was  concerned,  reasonably  prudent  and 
careful  and  that  the  payment  of  the  checks  was  not  caused  by 
any  negligence  on  their  part  and  we  do  not  think  it  can  be  said 
that  the  finding  is  without  evidence.  Moreover,  it  is  found  that 
the  defendant  paid  the  twenty-seven  checks,  in  each  case,  without 
any  inquiry  as  to  the  genuineness  of  the  indorsements,  and  in 
reliance  upon  the  responsibility  of  the  persons  presenting  the  same 
for  payment,  and  not  in  reliance  upon  anything  done  or  forborne 
by  the  plaintiffs,  except  the  fact  that  the  checks  had  been  drawn 
by  them ;  and,  further,  that  all  the  checks  except  the  three  paid 
directly  to  Bedell,  and  amounting  to  less  than  $2,400,  were  pre- 
sented to  the  defendant  by,  and  paid  to  banks  perfectly  solvent, 
and  liable  to  respond  to  the  defendant  for  all  moneys  paid  upon 
the  forged  indorsements.  These  findings,  supported  as  they  are 
by  the  evidence,  dispose  of  much  of  the  argument  upon  which  it 
is  sought  to  establish  the  proposition  that  the  plaintiffs  are,  by 
reason  of  their  own  acts  and  omissions,  estopped  from  claiming 
that  the  checks  were  paid  by  the  defendant  without  their  authority. 
The  facts  upon  which  an  estoppel  must  always  be  based  are  found 
against  the  defendant.     Bedell   in   issuing  the  false  checks  and 


Shipman  v.  Bank  111 

fabricating  the  false  papers  to  conceal  his  crime,  did  not  act__as_ 
the  plaintiffs'  agent  and  his  acts  in  this  regard  are  not  binding 
upon  them  nor  are  they  in  any  manner  affected  by  his  knowledge 
of  the  facts.  The  questions  that  arise  in  this  case  and  are  so  ably 
and  elaborately  discussed  in  the  briefs  of  counsel,  with  respect  to 
the  examination  of  the  returned  checks  and  pass-book,  the  man- 
ner in  which  the  plaintiffs'  business  was  conducted  and  the  degree 
of  care  and  supervision  that  was  exercised  over  their  subordinates, 
how  far  the  plaintiffs  are  bound  by  the  criminal  acts  and  knowl- 
edge of  their  clerk  as  well  as  the  general  rule  of  estoppel,  when 
applied  to  this  class  of  cases,  are  not  new.  They  have  been  fre- 
quently and  fully  discussed  in  the  numerous  cases  in  this  court, 
involving  the  rights  and  duties  of  banks  and  depositors,  and  it 
would  extend  this  opinon  beyond  reasonable  limits,  and  serve  no 
useful  purpose,  to  go  over  the  ground  again.  (Frank  v.  Chemical 
Nat.  Bank,  supra;  Welsh  v.  German  American  Bank,  supra; 
Weisser  v.  Denison,  supra;  People  v.  Bank  of  N.  A.,  75  N.  Y. 
547;  Leather  Mfg.  Bank  v.  Morgan,  supra;  Mayor,  etc.,  v.  Bank 
of  England,  L.  R.  [21  Q.  B.  D.],  160.) 

It  is  enough  to  state  our  general  conclusion  that,  with  respect 
to  all  these  points,  the  defendant  has  failed  to  establish  any  defense 
to  the  action. 

It  is  claimed  by  the  defendant  that  the  sixteen  checks  made 
payable  to  the  order  of  persons  having  no  existence  were,  in  legal 
effect,  payable  to  bearer.  It  is  provided  by  statute  that  paper 
made  payable  to  the  order  of  a  fictitious  person  and  negotiated  by 
the  maker  has  the  same  validity  "as  against  the  maker  and  all 
persons  having  knowledge  of  the  facts,  as  if  payable  to  bearer." 
1  R.  S.  768,  §  5. 

We  are  of  the  opinion,  upon  examination  of  the  authorities 
cited  by  counsel  on  both  sides,  that  this  rule  applies  only  to  paper 
put  into  circulation  by  the  maker  with  knowledge  that  the  name 
of  the  payee  does  not  represent  a  real  person.  The  maker's  inten- 
tion is  the  controlling  consideration  which  determines  the  char- 
acter of  such  paper.  It  cannot  be  treated  as  payable  to  bearer 
unless  the  maker  knows  the  payee  to  be  fictitious  and  actually 
intends  to  make  the  paper  payable  to  a  fictitious  person.  (Irving 
National  Bank  v.  Alley,  79  N.  Y.  536:  Turnbull  v.  Bowyer,  40 
id.  456;  Vagliano  v.  Bank  of  England,  L.  R.  [22  O.  B.  D.],  103; 
S.  C,  on  app.  2^  id.  243;  Armstrong  v.  Pomeroy  National  Bank, 
46  Ohio  St.  512;  [7  Railway  &  Corporation  Law  Journal,  114]  ; 
Gibson  v.  Minet,  1  H.  Black.  569.) 

The  findings  of  the  referee  that  the  plaintiffs  in  good  faith 
believed  that  the  names  of  the  payees  represented  real  persons, 


112  General  Requisites  of  the  Contract 

entitled  to  receive  from  them  the  amount  of  the  check  in  each  case, 
having  been  led  to  believe  this  by  the  fraudulent  contrivances  of 
Bedell,  and  that  they  intended  that  Bedell  should  deliver  the  check 
to  a  real  payee  therein  named  and  that  they  did  not  intend  that 
they  should  go  into  circulation  or  be  paid  by  defendant  otherwise 
than  through  a  delivery  and  indorsement  by  the  payee  named ; 
and  that  plaintiffs  gave  no  authority  to  Bedell  to  indorse  the  name 
of  the  payee,  or  to  put  the  checks  into  circulation,  and  that  no  one 
in  fact  relied  on  any  appearance  of  authority,  derived  from  the 
plaintiffs,  in  Bedell  to  indorse  the  payee's  name  upon  the  checks 
or  to  put  them  in  circulation,  disposes  of  the  question.  The 
indorsement  of  the  names  of  the  fictitious  payees  upon  the  checks, 
with  intent  to  deceive  and  to  put  the  checks  in  circulation,  .con- 
stituted the  crime  of  forgery  by  means  of  which,  and  without  any 
fault  of  the  plaintiffs,  payment  was  obtained  thereon.  The  defend- 
ant does  not  ocgjjpy^nj^jfferent  position  with  reference  to  the 't 
checks  payable  to  fictitious  payees  than  it  does  with  reference_to. 
those  payable  to  real  parties  whose  indorsements  were  forged. 

Bedell  of  course  knew  that  the  payees  were  fictitious,  but 
he  was  not_acting  within  the  scope  of  his  employment,  but  in 
carrying  out  a  scheme  of  fraud  upon  the  plaintffs,  and  under  such 
circumstances  his  knowledge  cannot  be  imputed  to  his  principals. 
{Frank  v.  Chemical  Nat.  Bank,  supra;  Weisser  v.  Denison,  supra; 
Welsh  v.  German  American  Bank,  supra;  Cave  v.  Cave,  L.  R. 
[15  Ch.  Div.],  643,  644.) 

The  case  presents  another  and  peculiar  question.  It  seems 
that  ten  of  the  eleven  checks  which  were  made  payable  to  the 
order  of  real  persons  were  made  good  by  Bedell  to  the  several 
payees,  and  the  defendant  has  set  up  these  facts  in  its  answer  as 
a  partial  equitable  defense.  The  referee  made  no  findings  on 
the  subject,  but  Bedell  so  testified  and  was  not  contradicted,  and 
the  question  arises  upon  a  request  by  the  defendant  to  find  in 
substance  that  the  amount  of  these  ten  checks  having  been  made 
good  by  Bedell  to  the  several  payees,  the  plaintiffs  having  sus- 
tained no  loss  by  reason  of  the  payment  thereof,  are  not  entitled 
to  recover  in  this  action  against  the  defendant  any  sum  on  account 
of  or  by  reason  of  the  payment  by  defendant  of  the  same.  The 
request  was  refused  and  the  defendant  excepted.  Keeping  in 
view  the  theory  of  this  action  and  regarding  the  evidence  before 
the  referee,  we  cannot  perceive  that  there  was  any  error  in 
refusing  the  request. 

Bedell  testified,  in  substance,  that  at  the  time  of  the  com- 
mencement of  the  action  the  plaintiffs  were  liable  to  clients  to  the 


Shipman  v.  Bank  113 

extent  of  $264,000  on  account  of  his  frauds.  There  were  $200,000 
in  fabricated  mortgages  which  had  been  delivered  by  Bedell  to 
clients  on  account  of  an  equal  sum  of  money  paid  by  the  clients 
to  plaintiffs  for  investment,  and  which  Bedell  had  converted  to  his 
own  use.  The  $64,000  was  obtained  through  other  frauds  upon 
clients  which  the  plaintiffs  were  liable  to  be  called  upon  to  make 
good.  One  of  the  plaintiffs  testified  that  his  firm  had  actually 
paid  to  clients  on  account  of  Bedell's  frauds  over  $242,000.  It 
was  not  shown  by  what  funds  or  in  what  manner  Bedell  made 
good  to  the  payees  the  amount  of  the  checks  intended  for  them. 
None  of  the  money  paid  by  him  was  traced  to  the  defendant.  The 
plaintiffs'  action  was  not  upon  the  checks,  nor  for  damages  by 
reason  of  their  payment,  but  on  defendant's  implied  promise  to 
pay  the  money  deposited  to  the  plaintiffs  or  upon  their  order.  The 
plaintiffs'  case  was  made  out  without  the  checks  at  all,  except  so 
far  as  they  were  necessary  as  proof  to  open  the  account  stated. 
In  substance  the  referee  was  asked  to  hold  that  by  reason  of  the 
payment  by  Bedell  of  the  amount  of  the  checks  to  the  persons 
named  therein,  without  any  reference  to  the  source  from  which 
the  money  came,  they  were  to  be  charged  to  the  plaintiffs  the 
same  as  if  paid  by  their  authority.  The  proof  given  did  not  jus- 
tify this  conclusion.  As  it  was  not  shown  that  such  payment  was 
made  at  the  expense  or  to  the  injury  of  the  defendant,  or  that  the 
plaintiffs  were  benefited  by  it,  beyond  their  whole  loss,  the  cause 
of  action  stated  in  the  complaint  was  not  affected  by  the  fact. 
It  is,  no  doubt,  true  that  payment  or  indemnity  to  the  payees  of 
checks  diverted  as  these  were,  made  by  the  wrong-doer,  might, 
under_certain  circnmsranres.  constitute  a  basis  for  equitable  relief 
in  an  action  of  this  kind,  but  the  proof  did  not  go  far  enough  to 
warrant  it  in  this  case. 

The  very  recent  case  of  Vagliano  v.  Bank  of  England  occu- 
pied such  a  prominent  place  in  the  discussion  of  the  questions 
involved  in  this  appeal  by  the  courts  below,  and  it  is  now  so 
earnestly  pressed  upon  our  attention  by  the  learned  counsel  for 
the  defendant  as  a  controlling  authority  in  support  of  his  views 
that  we  consider  it  necessary  to  refer  to  it  and  point  out,  so  far  as 
we  can,  the  rule  or  principle  which  it  decides.  In  the  magnitude 
of  the  sum  involved,  the  boldness  and  ingenuity  with  which  a 
clerk  perpetrated  a  stupendous  fraud  upon  his  employer,  and,  in 
many  other  respects,  that  case,  doubtless,  bears  a  very  strong 
resemblance  to  this.  The  question  there  was  whether  the  defend- 
ant was  entitled  to  debit  the  plaintiff,  one  of  its  depositors,  with 
forty-three  forged  bills  of  exchange,  amounting  in  the  aggregate 


114  General  Requisites  of  the  Contract 

to  71,500  pounds,  which  it  had  paid,  upon  a  genuine  acceptance 
by  the  plaintiff,  but  procured  by  fraud  under  substantially  the 
following  circumstances:  Vagliano,  the  plaintiff,  was  a  merchant 
and  foreign  banker  in  London,  with  correspondents  in  various 
parts  of  the  world  and  transacting  an  enormous  business  with  the 
defendant,  his  general  banker.  He  employed  in  his  office  a  con- 
siderable number  of  clerks,  and  among  them  one  Glyka,  who  had 
charge  of  the  foreign  correspondence.  One  Vucina,  a  merchant 
and  banker  at  Odessa,  was,  and  for  thirty  years  had  been,  one  of 
Vagliano's  correspondents,  transacting  with  him  a  large  business 
and  having  practically  unlimited  credit.  For  many  years  he  had 
drawn  drafts  for  large  amounts,  when  necessary,  upon  the  plain- 
tiff, payable  sometimes  to  his  own  order,  but  more  frequently  to 
the  order  of  a  payee  named  therein.  The  course  of  business  in 
the  office  was  well  known  to  Glyka,  who  procured  specimens  of 
Vucina's  letters  of  advice,  which  always  preceded  the  drafts,  and 
specimens  of  the  drafts  themselves.  Having  done  so  he  had 
paper  prepared  identical  in  general  appearance  and  texture  with 
that  upon  which  Vucina's  genuine  letters  and  bills  were  written. 
This  enabled  him  to  forge  letters  of  advice  and  drafts  with 
Vucina's  name  as  drawer,  which  he  executed  with  extraordinary 
skill,  and  in  each  case  he  wrote  upon  the  face  of  the  bill,  as  payees, 
the  name  of  C.  Petridi  &  Co.,  a  firm  who  carried  on  business  at 
Constantinople,  and  had  business  relations  with  Vucina,  but  had 
no  connection  whatever  with  the  fabricated  drafts.  Glyka  caused 
these  forged  letters  of  advice  and  drafts  to  be  laid  before  Vagliano, 
his  principal,  who,  being  deceived  by  the  skillful  manner  in  which 
the  papers  were  prepared  and  the  confidence  he  reposed  in  his 
clerks,  wrote  a  genuine  acceptance  on  the  face  of  each  bill  as  it 
was  put  before  him  from  time  to  time  during  a  period  of  some 
four  months,  payable  in  every  case  at  the  Bank  of  England. 
These  fabricated  bills,  having  been  thus  accepted,  were  placed 
with  the  other  and  genuine  bills  in  a  box  in  the  office  to  be  deliv- 
ered according  to  the  usual  course  of  business  to  the  proper  party 
when  called  for.  Glyka  stole  the  bills  from  the  box,  forged  the 
indorsement  of  the  payees  thereon,  presented  them  at  the  counter 
of  the  bank  and  received  the  money  thereon.  By  the  English 
Bills  of  Exchange  Act  of  1882  (45  and  46  Vict.,  Ch.  61,  §7, 
subd.  3),  it  was  enacted  with  reference  to  bills  of  exchange,  that 
"where  the  payee  is  a  fictitious  or  non-existing  person,  the  bill 
may  be  treated  as  payable  to  bearer."  The  bank  defended  upon 
two  grounds — first,  that  they  were  protected  by  this  statute,  and 
secondly,  that  the  plaintiff  was  guilty  of  such  negligence  as  pre- 


Shipman  v.  Bank.  115 

eluded  him  from  claiming  that  the  payment  made  upon  these  bills 
were  without  authority.  On  the  trial  of  the  action  before  Mr. 
Justice  Charles,  the  plaintiff  recovered.  (L.  R.  [22  Q.  B.  D.],  103.) 
On  appeal,  the  judgment  was  affirmed,  the  master  of  the  rolls 
alone  dissenting,  on  the  ground  that  the  bank  was  protected  by 
the  Bills  of  Exchange  Act.  (L.  R.  [23  Q.  B.  D.]  243.)  Thus  far 
the  view  of  the  courts  in  both  hearings  were  in  harmony  with  the 
contention  of  the  plaintiffs  in  the  case  at  bar,  both  as  to  the  con- 
struction of  the  statute  and  the  facts  bearing  on  the  question  of 
negligence.  The  judgment,  however,  has  recently  been  reversed 
by  the  House  of  Lords,  and  we  have  been  furnished  with  copies 
of  the  opinions  given  upon  the  final  decision  of  the  appeal,  and 
have  given  to  them  the  careful  consideration  which  the  high 
authority  of  the  tribunal  from  which  they  emanate  and  the 
importance  of  the  case  seems  to  demand.  The  main  point  upon 
which  the  case  turned  in  the  review  by  the  House  of  Lords,  as 
we  understand  the  opinions,  was  the  construction  to  be  given  to 
the  Bills  of  Exchange  Act.  It  was  held,  contrary  to  the  opinions 
below,  that  whenever  the  name  inserted  as  payee  is  without  any 
intention  that  payment  shall  be  made  only  in  conformity  there- 
with, the  payee  then  becomes  a  fictitious  person  within  the  mean- 
ing of  the  act,  and,  therefore,  the  forty-three  bills  were  within  the 
statute,  though  Petridi  &  Co.  were  in  fact  existing  and  real  per- 
sons. When  this  conclusion  was  reached,  the  plaintiff's  case 
necessarily  failed,  as  it  was  but  another  way  of  stating  that  the 
bank  paid  the  fabricated  bills  according  to  their  legal  tenor  and 
effect  and  according  to  the  plaintiff's  directions,  that  is,  to  bearer. 
It  is  hardly  necessary  to  add  that  if  we  could  follow  that  case 
in  giving  construction  to  our  statute,  the  same  result  would  follow 
in  this  case.  But  it  is  quite  obvious  that  we  cannot.  The  language 
is  different.  Our  statute  is  a  codification  of  the  common  law, 
while  the  English  statute  is,  and  was  intended  to  be,  a  departure 
from  it.  In  so  far  as  the  opinions  deal  with  the  facts  of  the  case 
upofTfhe  question  of  negligence,  it  is  difficult  to  deduce  from  them 
any  abstract  rule  or  principle.  Moreover,  there  is,  as  it  seems  to 
us,  a  material  difference  in  some  respects  between  the  facts  of 
that  case  and  the  one  at  bar.  Vagliano,  through  the  contrivances 
of  his  clerk,  had  put  before  him  a  fabricated  bill,  the  spurious 
character  of  which  he  failed  to  .detect,  and  he  fixed  to  it  a  genuine 
acceptance,  thereby  accrediting  it  to  the  bank  as  a  genuine  instru- 
ment. He  left  the  bill  thus  accepted  in  a  place  where  the  dis- 
honest clerk  could  easily  purloin  it.  The  manner  in  which  the 
business  was  conducted  was  such  as  to  enable  the  clerk  to  possess 


\ 


116  General  Requisites  of  the  Contract 

himself  of  the  means  whereby  the  fraud  was  successfully  carried 
out  without  check  or  detection.  The  view  of  the  case  taken  in 
the  opinions  delivered  in  the  House  of  Lords,  aside  from  the 
question  of  the  construction  of  the  statute,  may  very  well  be 
attributed  to  a  different  shading  in  the  facts,  and  to  the  further 
consideration  which  can  be  inferred  from  the  record,  that  that 
tribunal  is  not  confined,  as  we  are,  to  a  review  of  the  courts  below 
upon  questions  of  law  only.  For  these  reasons,  the  Vagliano  case 
cannot  be  regarded  as  authority  adverse  to  the  conclusion  at 
which  we  have  arrived  in  this.  We  have  examined  the  other 
exceptions  appearing  in  the  record  to  which  our  attention  has  been 
directed,  and  we  are  of  the  opinion  that  none  of  them  can  be 
sustained. 

The  judgment  should  be  affirmed. 

All  concur,  Gray,  J.,  in  result. 

Judgment  affirmed. 


V" 


FILLING   UP   BLANKS.  §  l6. 

The  Bank  of  Pittsburg  v.  Ncal  ct  al.  (1859),  22  How.  (63  U.  S). 

96. 

This  case  was  brought  up  by  writ  of  error  from  the  Circuit 
Court  of  the  United  States  for  the  district  of  Indiana. 

It  was  an  action  brought  by  the  bank  upon  two  bills  of 
exchange,  one  dated  on  the  18th  of  August,  1857,  at  Pittsburgh, 
drawn  by  L.  O.  Reynolds  &  Son  upon  J.  S.  &  R.  E.  Neal,  at 
Madison,  Indiana,  requesting  them  to  pay,  four  months,  after  date 
of  this  second  of  exchange,  (first  unpaid,)  to  the  order  of  L.  O. 
Reynolds,  at  the  Ohio  Life  Insurance  and  Trust  Company,  at 
Cincinnati,  in  the  State  of  Ohio,  two  thousand  one  hundred  and 
sixty-eight  dollars.  Reynolds  endorsed  this  bill  to  L.  Wilmarrh 
&  Co.,  who  endorsed  it  to  the  bank.  The  bill  was  accepted  by  J. 
S.  &  R.  E.  Neal. 

The  other  bill  sued  upon  was  similar  in  all  its  circumstances, 
except  that  it  was  dated  on  the  1st  of  August,  1857,  payable  four 
months  after  the  date  of  this  second  of  exchange,  (first  unpaid,) 
for  thirteen  hundred  and  fifty  dollars.  It  was  endorsed  and 
accepted  like  the  other. 

In  order  to  present  a  distinct  view  of  the  transactions  which 
led  to  this  suit  and  the  nature  of  the  defence,  it  seems  necessary 


The  Bank  of  Pittsburg  v.  Neal  et  al.  117 

to  state  particularly  all  the  bills  mentioned  in  the  proceedings, 
designating  each  bill  by  a  letter,  which  is  the  reporter's  mark,  and 
used  for  easy  reference. 

In  June,   1857,  J.   S.  &  R.  E.   Neal,  residents  of  Madison, 
Indiana,   for  the  purpose  of  raising  money,  delivered  to  L.  O. 
Reynolds,  of  Pittsburgh,  the  four  following  bills,  viz. : 
Exchange  for  $ . 

after of  this  first  of  exchange,  (second  unpaid,) 

pay  to  the  order  of  L.  O.  Reynolds  dollars,  value  received, 

without  any  relief  from  valuation  or  appraisement  laws. 

To- . 

Accepted :   J.  S.  &  R.  E.  Neal. 

(This  bill  we  will  call  A.) 
Exchange  for  $ . 

after  of  this  first  of  exchange,  (second  unpaid,) 


pay  to  the  order  of  L.  O.  Reynolds  dollars,  value  received, 

without  any  relief  from  valuation  or  appraisement  laws. 

To . 

Accepted :   J.  S.  &  R.  E.  Neal. 

(This  bill  we  will  call  B.) 

Exchange  for  $ . 

after  of  this  second  of  exchange,  (first  unpaid,) 


pay  to  the  order  of  L.  O.  Reynolds dollars,  value  received, 

without  any  relief  from  valuation  or  appraisement  laws. 

To- . 

Accepted :   J.  S.  &  R.  E.  Neal. 

(This  bill  we  will  call  C.) 

Exchange  for  $ . 

after  of  this  second  of  exchange,  (first  unpaid,) 


pay  to  the  order  of  L.  O.  Reynolds  dollars,  value  received, 

without  any  relief  from  valuation  or  appraisement  laws. 

To . 

.Accepted:   J.  S.  &  R.  E.  Neal. 

(This  bill  we  will  call  D.) 
With  these  bills,  instructions  were  sent  to  Reynolds  to  have 
them  filled  up  for  sums  not  less  than  $1,500,  nor  more  than  $3,000 
each,  to  have  them  discounted  at  Pittsburgh,  and  remit  the  pro- 
ceeds to  J.  S.  &  R.  E.  Neal,  at  Madison,  Indiana. 

In  July,  1857,  four  other  bills  like  the  preceding  were  sent 
to  Reynolds.  These  last  bills  were  sent  to  Reyolds  at  his  request, 
and  intended  for  his  use,  as  accommodation  acceptances  of  the 
Neals. 

These  bills  we  will  call  E,  F,  G.  H. 


118  General  Requisites  of  the  Contract 

A  was  filled  up  by  Reynolds  as  follows:  Date,  July  1st; 
amount,  $1,965;  time,  four  months;  drawers,  L.  O.  Reynolds  & 
Son ;  drawees,  J.  S.  &  R.  E.  Neal.  Thus  filled  up,  it  was  nego- 
tiated by  Reynolds  to  the  Mechanics'  Bank  of  Pittsburgh.  Reyn- 
olds failed  to  remit  the  proceeds  according  to  instructions.  When 
the  paper  matured,  the  defendants,  as  acceptors,  paid  it. 

B  was  filled  up  as  follows:  Date,  July  10th ;  time,  four 
months;  amount,  $2,035;  drawers,  L.  O.  Reynolds  &  Son; 
drawees,  J.  S.  &  R.  E.  Neal.  Thus  filled  up,  it  was  negotiated 
by  Reynolds  to  the  Merchants  and  Manufacturers'  Bank  of  Pitts- 
burgh. The  proceeds  of  this  bill  were  remitted  by  Reynolds  to 
the  defendants.  Before  the  commencement  of  this  suit,  the 
Merchants  and  Manufacturers'  Bank,  as  holder  and  owner  of  the 
bill,  recovered  judgment  on  it  against  the  acceptor  in  the  Jeffer- 
son Circuit  Court  of  the  State  of  Indiana.  C  and  D  were  for 
the  present  retained  by  Reynolds  in  his  own  possession. 

E,  being  similar  to  A,  was  filled  up  as  follows:  Date,  July 
30th  ;  time,  four  months ;  amount,  $2,450 ;  drawers,  L.  O.  Reynolds 
&  Son ;  drawees,  J.  S.  &  R.  E.  Neal.  Thus  filled  up,  it  was  nego- 
tiated by  Reynolds  to  the  Merchants  and  Manufacturers'  Bank  of 
Pittsburgh,  Reynolds  retaining  the  proceeds.  The  holders  of  this 
bill  brought  suit  against  the  defendants,  as  acceptors,  in  the  Jef- 
ferson Circuit  Court,  Indiana,  which  action  was  still  pending  when 
the  pleas  in  this  case  were  filed. 

F,  being  similar  to  B,  was  filled  up  by  Reynolds  as  follows : 
Date,  July  24th  ;  time,  four  months ;  amount,  $2,750 ;  drawers, 
L.  O.  Reynolds  &  Son ;  drawees,  J.  S.  &  R.  E.  Neal.  Thus  filled 
up,  it  was  negotiated  by  Reynolds  to  the  Citizens'  Bank  of  Pitts- 
burgh, Reynolds  retaining  the  proceeds.  John  Black  &  Co.  became 
the  holders,  and  after  its  maturity,  and  before  the  commencement 
of  this  suit,  they  recovered  judgment  against  the  acceptors  of 
the  bill  for  its  full  amount  in  the  Jefferson  Circuit  Court  of 
Indiana. 

Thus  the  bills  A,  B,  E,  F,  being  the  first  of  exchange,  (sec- 
ond unpaid,)  are  accounted  for.  What  became  of  G  and  H,  the 
record  did  not  show.     Let  us  now  account  for  C  and  D. 

C  was  filled  up  as  follows:  Date,  August  1st;  time,  four 
months;  amount,  $1,350;  drawers  and  drawees,  as  above. 

D  was  filled  up  as  follows:  Date,  August  18th ;  time,  four 
months;  amount,  $2,t68;  same  drawers  and  drawees.  These  bills 
were  both  negotiated  to  the  Bank  of  Pittsburgh,  and  were  the 
ones  sued  on  in  this  case.  Tt  will  be  observed  that  they  were  both 
second  of  exchange,  (first  unpaid,)  and  that  the  sums  of  money 


The  Bank  of  Pittsburg  v.  Neal  et  al.  119 

did  not  correspond  in  amount  with  any  of  those  for  which  the  first 
of  exchange  had  been  filled  up,  nor  in  date,  time,  or  place  of 
payment. 

There  were  four  counts  in  the  declaration,  and  eight  pleas, 
which  were  all  demurred  to  except  the  plea  of  the  general  issue. 
It  is  not  necessary  to  state  these  pleadings,  because  they  were 
only  intended  to  raise  the  questions  of  law  which  arise  from  the 
statement  of  facts  given  above.  The  court  overruled  the  plaintiffs' 
demurrers,  so  that  judgment  went  for  the  defendant;  and  upon 
this  ruling  upon  the  demurrers,  the  case  was  brought  up  by  the 
plaintiff  to  this  court. 

Mr.  Stanton  and  Mr.  Walker,  for  plaintiff  in  error. 
Mr.  Thompson  and  Mr.  Dunn,  for  defendants. 

Mr.  Justice  Clifford  delivered  the  opinion  of  the  court. 

This  is  a  writ  of  error  to  the  Circuit  Court  of  the  United 
States  for  the  district  of  Indiana.  All  of  the  questions  presented 
in  this  case  arise  upon  the  pleadings  and  the  facts  therein  dis- 
closed. It  was  an  action  of  assumpsit,  brought  by  the  plaintiff  in 
error  as  the  holder  of  two  certain  bills  of  exchange,  against  the 
defendants  as  the  acceptors.  An  amendment  to  the  declaration 
was  filed  after  the  suit  was  commenced.  As  now  exhibited  in  the 
transcript  it  contains  four  counts.  Two  of  the  counts  were  drawn 
up  on  the  respective  bills  of  exchange,  and  are  in  the  usual  form 
of  declaring  in  suits,  by  the  holder  of  a  bill  of  exchange  against 
the  acceptor.  Those  contained  in  the  amendment  are  special  in 
form,  setting  forth  the  circumstances  under  which  the  respective 
bills  of  exchange  were  drawn,  accepted,  and  negotiated,  and 
averring  that  these  acts  were  subsequently  ratified  by  the  defend- 
ants. To  the  merits  of  the  controversy  the  defendants  pleaded  the 
general  issue,  and  filed  seven  special  pleas^l  in  bar  of  the  action. 
Demurrers  were  filed  by  the  plaintiff  to  each  of  the  special  pleas, 
which  were  duly  joined  by  the  defendants,  and  after  the  hearing, 
the  court  overruled  all  of  the  demurrers.  Those  filed  to  the  pleas 
responsive  to  the  first  and  second  counts  were  overruled  upon  the 
ground  that  the  pleas  were  sufficient,  and  constituted  a  good  bar 
to  the  action;  but  those  filed  to  the  fifth,  sixth,  seventh,  and 
eighth  pleas  were  overruled,  upon  the  ground  that  the  third  and 
fourth  counts,  to  which  those  pleas  exclusively  applied,  were  each 
insufficient  in  law  to  maintain  the  action.  Whereupon,  the  plain- 
tiff abiding  his  demurrers,  the  court  directed  that  judgment  be 
entered  for  the  defendants,  and  the  plaintiff  sued  out  a  writ  of 
error,  and  removed  the  cause  into  this  court.    It  being  very  prop- 


120  General  Requisites  of  the  Contract 

erly  admitted,  by  the  counsel  of  the  defendants,  that  the  first  and 
second  counts  of  the  declaration  are  in  the  usual  form,  it  is  not 
necessary  to  determine  the  question  as  to  the  sufficiency  of  the 
third  and  fourth,  and  we  are  the  less  inclined  to  do  so,  from  the 
fact  that  the  counsel  on  both  sides  expressed  the  wish,  at  the 
argument,  that  the  decision  of  the  cause  might  turn  upon  the  ques- 
tion, whether  the  plaintiff,  on  the  facts  disclosed  in  the  pleadings, 
was_entitled  to  recover  against  the  defendants.  That  question  is 
the  main  one  presented  by  the  pleadings ;  and  inasmuch  as  it  might 
well  have  been  tried  under  the  general  issue,  we  think  it  quite 
unnecessary  to  consider  any  of  the  incidental  questions  which  do 
not  touch  the  merits  of  the  controversy.  Special, .pleading  in 
suits  on_bills_of  exchange  _and_i>romissory  notes  ought  not  to  be 
encouraged,  except  in  eases  where  by  law  the  defence  would 
otherwise  be  excluded  or  rendered  unavailing.  Full  and  clear 
statements  of  the  facts  as  disclosed  in  the  pleadings,  were  pre- 
sented to  the  court,  at  the  argument,  by  the  counsel  on  both 
sides.  They  are  substantially  as  follows:  In  June,  1857,  the[ 
defendants,  residents  of  Madison,  in  the  State  of  Indiana,  being 
desirous  of  procuring  a  loan  of  money,  made  their  certain  accept- 
ances in  writing  of  two  blank  bills  of  exchange,  in  sets  of  two 
parts  to  each  bill,  and  transmitted  the  four  blanks,  thus  accepted, 
to  their  correspondent,  Lot  O.  Reynolds,  then  and  still  residing 
at  Pittsburgh,  in  the  State  of  Pennsylvania.  Both  sets  of  blanks 
were  in  the  form  of  printed  blanks  usually  kept  by  merchants  for 
bills  of  exchange  in  double  sets,  except  that  each  of  the  four  was 
made  payable  to  the  order  of  the  correspondent  to  whom  they 
were  sent,  and  was  duly  accepted  on  its  face  by  the  defendants, 
in  the  name  of  their  firm.  They  were  in  blank  as  to  the  names 
of  the  drawers  and  the  address  of  the  drawees,  and  as  to  date, 
and  amount,  and  time,  and  place  of  payment.  When  the  defend- 
ants forwarded  the  acceptances,  they  instructed  their  correspond- 
ent to  perfect  them  as  bills  of  exchange,  by  procuring  the  signa- 
tures of  the  requisite  parties,  as  accommodation  drawers  and 
endorsers,  and  to  fill  up  each  with  the  appropriate  date,  and  with 
sums  not  less  than  fifteen  hundred  nor  more  than  three  thousand 
dollars,  payable  at  the  longest  period  practicable,  and  to  sell  and 
negotiate  the  bills  as  perfected,  for  money,  and  remit  the  proceeds 
to  the  defendants.  Afterwards,  in  the  month  of  July,  of  the  same 
year,  the  defendants,  at  the  request  of  the  person  to  whom  those 
acceptances  were  sent,  made  four  other  similar  acceptances,  and 
delivered  them  to  him,  to  be  sold  and  negotiated  as  bills  of 
exchange,  in  double  sets,  for  his  own  use,  and  with  power  to  retain 


The  Bank  of  Pittsburg  v.  Neal  et  al.  121 

and  use  the  proceeds  thereof  for  his  own  benefit.  They  were  in 
all  respects  the  same,  in  point  of  form,  as  the  four  acceptances 
first  named,  and,  like  those,  each  of  the  four  parts  were  mack- 
payable  to  the  order  of  the  person  at  whose  request  they  were 
given,  and  was  duly  accepted  by  the  defendants  in  the  name  of 
their  firm.  When  they  delivered  the  sets  last  named,  they  author- 
ized the  payee  to  perfect  them  as  bills  of  exchange,  in  two  parts,  in 
reasonable  amounts,  and  with  reasonable  dates.  Eight  acceptances 
were  thus  delivered  by  the  defendants  to  the  same  person,  corre- 
sponding in  point  of  form  to  four  bills  of  exchange,  but  with 
blanks  for  the  names  of  the  drawers  and  the  address  of  the 
drawees,  and  for  the  respective  amounts,  dates,  and  times  and 
places  of  payment.  Four  contained,  in  the  printed  form  of  the 
blanks,  the  words,  "first  of  exchange,  second  unpaid ;"  and  the 
other  four  contained  in  the  corresponding  form  the  words,  "second 
of  exchange,  first  unpaid ;"  but  in  all  other  respects  they  were 
alike.  All  of  the  first  class  were  perfected  by  the  correspondent 
as  bills  of  exchange  of  the  first  part,  and  were  sold  and  negotiated 
by  him  at  certain  other  banks  in  the  City  of  Pittsburgh.  He  per- 
fected them  by  procuring  L.  O.  Reynolds  &  Son  to  become  the 
drawers,  addressed  them  to  the  defendants,  endorsed  them  him- 
self in  blank,  and  procured  another  individual  or  firm  to  become 
the  second  endorser.  They  were  filled  up  by  him  for  sums  vary- 
ing from  about  two  thousand  to  three  thousand  dollars,  with 
dates  corresponding  to  the  times  when  they  were  negotiated,  and 
were  respectively  made  payable  in  four  months  from  date.  Con- 
trary to  his  instructions,  he  retained  the  proceeds  of  the  one  first 
negotiated,  which  he  had  been  directed  to  remit;  and  he  also 
retained  in  his  possession,  but  without  inquiry  or  complaint  on 
the  part  of  the  defendants,  the  other  four  acceptances,  consti- 
tuting the  second  class.  On  the  first  day  of  August,  1857.  he 
perfected  and  filled  up  as  a  separate  bill  of  exchange  one  of  the 
last-named  acceptances,  and  sold  and  negotiated  it  to  the  plaintiff 
for  his  own  use  and  benefit.  He  also  perfected  and  filled  up,  on 
the  eighteenth  day  of  the  same  month,  another  of  the  same  class, 
in  the  same  manner,  and  for  the  same  purpose,  and  on  the  same 
day  sold  and  negotiated  it  to  the  plaintiff.  Both  of  these  last- 
mentioned  bills  of  exchange  vary  from  those  of  the  first  class, 
not  only  in  dates  and  amounts,  but  also  as  to  time  and  place  of 
payment,  and  are  in  all  respects  single  bills  of  exchange.  They 
were  each  received  and  discounted  by  the  plaintiff,  without  ac- 
knowledge whatever  that  either  had  been  perfected  and  filled  up 
by  the  payee  without  authority,  or  of  the  circumstances  under 


122  General  Requisites  of  the  Contract 

which  they  had  been  intrusted  to  his  care,  unless  the  words,  "sec- 
ond of  exchange,  first  unpaid,"  can  be  held  to  have  that  import. 

In  all  other  respects,  the  bills  must  be  viewed  precisely  as 
they  would  be  if  they  had  been  perfected  and  filled  up  by  the 
defendants,  and  for  two  reasons,  deducible  Irom  the  decisions  of 
this_£Ojirl : 

First.  Because,  where  a  party  to  a  negotiable  instrument 
mtrusts  it  to  the  custody  of  another  with  blanks  not  filled  up, 
whether  it  be  tor  the  purpose  to  accommodate  the  person  to  whom 
it  was  intrusted,  or  to  be  used  for  his  own  benefit,  such  negotiable 
instrument  carries  on  its  face  an  implied  authority  to  fill  up  the 
blanks~and  perfect  the  instrument ;  and  as  between  such  party 
and  innocent  third  parties,  the  person  to  whom  it  was  so  intrusted 
must  be  deemed  the  agent  of  the  party  who  committed  such 
instrument  to  his  custody — or,  in  other  words,  it  is  the  act  of  the 
principal,  and  he  is  bound  by  it.  Goodman  v.  Simonds,  20  How., 
361  ;  Violet  v.  Patton,  5  Cran.,  142. 

Secondly.  Because  a  bona  fide  holder  of  a  negotiable  instru- 
ment, for  a  valuable  consideration,  without  notice  of  the  facts 
which  impeach  its  validity  between  the  antecedent  parties,  it  he 
takes  it  under  an  indorsement  made  before  the  same  becomes  due, 
holds  the  title  unaffected  bv  these  facts,  and  may  recover  thereon, 
although,  as  between  the  antecedent  parties,  the  transaction  may 
be  without  any  legal  validity.  Swift  v.  Tyson,  16  Peters,  15; 
Goodman  v.  Simonds,  20  Howard,  363. 

Applying  these  principles,  it  is  obvious  that  the  only  ques- 
tion^ that  arises  on  this  branch  of  the  case  js  as  to  the  effect  of 
the  words,  "second  of  exchange,  first  unpaid,"  which  appear  on 
trie  Tace  oFthebills.  That  question,  under  the  circumstances  of 
this  case,  is  a  question  of  law,  and  not  of  fact  for  the  jury.  Three 
decisions  of  this  court  sustain  that  proposition  ;  and  in  view  of 
that  fact,  we  think  it  unnecessary  to  do  more  than  refer  to  those 
decisions,  without  further  comment  in  its  support.  Andrczvs  v. 
Pond  and  al.,  13  Pet.,  5:  Fowler  v.  Brantly,  14  Pet,  318;  Good- 
man v.  Simonds,  20  How.,  366. 

Another  principle,  firmly  established  by  this  court,  and  closely 
allied  to  the  question  under  consideration,  will  serve  very  much 
to  elucidate  the  present  inquiry.  In  Dozvnes  and  al.  v.  Church, 
13  Pet.,  p.  207,  this  court  held,  that  either  of  the  set  of  bills  of 
exchange  may  be  presented  for  acceptance,  and  if  not  accepted, 
that  a  right  of  action  presently  arises,  upon  due  notice,  against 
all  the  antecedent  parties  to  the  bill,  without  any  others  of  the  set 
being  presented ;  for,  say  the  court,  it  is  by  no  means  necessary 


The  Bank  of  Pittsburg  v.  Neal  ei   al.  123 

that  all  the  parts  should  be  presented  for  acceptance  before  a  right 
of  action  accrues  to  the  holder. 

Now,  if  either  of  the  set  may  be  presented,  and  when  not 
accepted  a  right  of  action  immediately  ensues,  it  is  difficult  to 
see  any  reason  why,  if  upon  presentation  the  bill  is  accepted,  it  is 
not  competent  for  the  endorsee  to  negotiate  it  in  the  market ;  and 
clearly,  if  the  endorsee  may  properly  negotiate  the  bill,  a  bona  fide 
holder  for  value,  without  notice,  may  acquire  a  good  title.  In 
this  connection,  Mr.  Chitty  says,  that  "unless  the  drawee  has 
accepted  another  part  of  a  bill,  he  may  safely  pay  any  part  that 
js  presented  tojhim,  and  that  a  ..payment  of  that  part  will  annul 
the  effect  of  the  others ;  but  if  one  of  the  parts  has  been  accepted, 
the  payment  of  another  unaccepted  part  will  not  liberate  the 
acceptor  from  liability  to  pay  the  holder  of  the  accepted  part,  and 
such  acceptor  may  therefore  refuse  to  pay  the  bearer  of  the 
unaccepted  part ;"  from  which  he  deduces  the  rule,  that  a  drawee 
of  a  bill  drawn,  in  sets  should  only  accept  one  of  the  set.  Chitty 
on  Bills,  (10  Am.  ed.,  by  Barb.,)   155. 

Mr.  Byles  says:  "The  drawee  should  accept  only  one  part, 
for  if  two  accepted  parts  should  come  into  the  hands  of  different 
holders,  and  the  acceptor  should  pay  one,  it  is  possible  that  he 
may  be  obliged  to  pay  the  other  part  also;"  which  could  not  be, 
unless  it  was  competent  for  the  holder  of  a  second  part  to  nego- 
tiate it  in  the  market.    Byles  on  Bills,  p.  310. 

Where  the  drawee  accepted  and  endorsed  one  part  to  a  cred- 
itor, as  a  security,  and  afterwards  accepted  and  endorsed  another 
part  for  value  to  a  third  person,  but  subsequently  substituted 
another  security  for  the  part  first  accepted,  it  was  held,  in  Holds- 
worth  v.  Hunter,  10  Barn,  and  Cress.,  449,  that,  under  these  cir- 
cumstances, the  holder  of  the  part  secondly  accepted  was  entitled 
to  recover  on  the  bill ;  and  Lord  Tenterden  and  Baron  Parke  held 
that  the  acceptor  would  have  been  liable  on  the  part  secondly 
accepted,  even  if  the  first  part  had  been  endorsed  and  circulated 
unconditionally. 

Judge  Story  says,  in  his  work  on  bills  of  exchange,  that  the 
bona  Me  holder  of  any  one  of  the  set,  if  accepted,  may  recover 
the  amount  from  the  acceptor,  who  would  not  be  bound  to  pay- 
any  other~of  th~e~set  which  was  held  by  another  person,  although 
he  might  be  the  firsThoIder.    Story  on  Bills,  sec.  226. 

No  authority  is  cited,  for  the  defendant,  to  impair  the  force 
of  those  already  referred  to;  but  it  is  not  necessary  to  express 
any  decided  opinion  upon  the  point  at  the  present  time.  Suffice 
it  to  say,  that  in  the  absence  of  any  authority  to  the  contrary,  we 


124  General  Requisites  of  the  Contract 

are  strongly  inclined  to  think  that  the  correct  rule  is  stated  by 
Mr.  Chitty,  and  that  such  is  the  general  understanding  among 
mercantile  men. 

But  another  answer  may  be  given  to  the  argument  for  the 
defendant,  which  is  entirely  conclusive  against  it ;  and  that  is, 
that  the  bills  described  in  the  first  and  second  counts  were  not 
parts  of  sets  of  bills  of  exchange.  They  were  perfected,  filled  up, 
and"  negotiated^~rjy~  the  correspondent  of  the  defendants,  to  whom 
the  blank  acceptances  had  been  intrusted  as  single  bills  of 
exchange ;  and  for  the_acts_of_their  correspondent,  in  that  behalf, 
^ipjdefendants  are  responsible _1q.  a  bona  fide  holder  for  value, 
without  notice  that  the  acts  were  performed  without  authority. 

When  the  transaction  is  thus  viewed,  as  it  must  be  in  con- 
templation of  law,  it  is  clearly  brought  within  the  operation  of 
the  same  rule  as  it  would  be  if  the  defendant  himself  had  improvi- 
dently  accepted  two  bills  for  the  same  debt.  In  such  cases,  it  is 
held,  that  the  acceptor  is  liable  to  pay  both,  in  the  hands  of  inno- 
cent holders  for  value.    Davidson  v.  Robertson,  3  Dow.  P.  C,  228. 

Lord  Eldon  said,  in  that  case:  "Here  were  two  bills  for  the 
same  account,  and  supposed  to  be  for  the  same  sums;  they  who 
were  to  pay  them  had  a  right  to  complain  that  there  were  two, 
and  yet  they  were  bound  to  pay  both,  in  the  hands  of  bona  fide 
holders,  if  accepted  by  them  or  by  others  for  them,  having  author- 
ity to  accept." 

To  suppose,  in  this  case,  that  the  words  "second  of  exchange, 
first  unpaid,"  import  knowledge  to  the  plaintiff  that  the  bills  were 
drawn  in  sets,  would  be  to  give  them  an  effect  contrary  to  the 
averments  of  the  defendants'  pleas,  as  well  as  contrary  to  the 
admitted  fact  that  they  were  not  so  drawn ;  and  for  those  reasons 
the  theory  cannot  be  sustained. 

In  view  of  all  the  facts  as  disclosed  in  the  pleadings,  we  think 
the  case  clearly  falls  within  the  operation  of  the  rule,  generally 
applicable  in  cases  of  agency,  that  where  one  of  two  innocent 
parties  must  sufferTThrough  the  fraud  or  negligence  of  a  third 
party,  theloss  shall  fall  upon  him  who  gave  the  credit.  Fitzher- 
bert  v.  Mathen,  1  Term.,  16,  per  Buller ;  Androscoggin  Bank  v. 
Kimball,  10  Cush.,  373;  Montague  v.  Perkins,  22  Eng.  L.  and 
Eq.,  516. 

Business  men  who  place  their  signatures  to  blanks,  suitable 
for  negotiable  bills  of  exchange  or  promissory  notes,  and  intrust 
them  to  their  correspondents,  to  raise  money  at  their  discretion, 
ought  to  understand  the  operation  and  effect  of  this  rule,  and  not 


Baxendale  v.  Bennett  125 

to  expect  that  courts  of  justice  will  fail  in  such  cases  to  give  it 
due  application. 

According  to  the  views  of  this  court,  the  demurrers  to  the 
several  pleas  filed  to  the  first  and  second  counts  of  the  declaration 
should  have  been  sustained.  Having  come  to  that  conclusion,  it 
is  unnecessary  to  examine  the  other  propositions  submitted  on 
,behalf  of  the  defendants. 

The  judgment  of  the  Circuit  Court  is  therefore  reversed, 
with  costs,  and  the  cause  remanded,  with  directions  to  enter  judg- 
ment for  the  plaintiff,  as  upon  demurrer,  on  the  first  and  second 
counts  of  the  declaration.  . 

V 

INCOMPLETE   INSTRUMENT    NOT   DELIVERED.  §  1 7. 

Baxendale  v.  Bennett  {1878),  L.  R.  3  Q.  B.  D.  525. 

Action  commenced  on  the  10th  July,  1876,  on  a  bill  of 
exchange,  dated  the  nth  of  March,  1872,  for  50/.  drawn  by  W. 
Cartwright  and  accepted  by  the  defendant,  and  of  which  the 
plaintiff  was  the  holder,  and  for  interest. 

At  the  trial  before  Lopes,  J.,  without  a  jury,  at  the  Hilary 
Sittings  in  Middlesex,  the  following  facts  were  proved:  The 
bill,  dated  on  the  nth  of  March,  1872,  on  which  the  action  was 
brought,  purported  to  be  drawn  by  one  W.  Cartwright  on  the 
defendant,  payable  to  order  at  three  months'  date.  It  was  indorsed 
in  blank  by  Cartwright,  and  also  by  H.  T.  Cameron.  The  plain- 
tiff received  the  bill  from  Cameron  on  the  3d  of  June,  1872,  and 
was  the  bona  fide  holder  of  it,  without  notice  of  fraud,  and  for 
a  valuable  consideration. 

One  J.  F.  Holmes  had  asked  the  defendant  for  his  acceptance 
to  an  accommodation  bill,  and  the  defendant  had  written  his 
name  across  a  paper  which  had  an  impressed  bill  stamp  on  it,  and 
had  given  it  to  Holmes  to  fill  in  his  name,  and  then  to  use  it  for  the 
purpose  of  raising  money  on  it.  Afterwards  Holmes,  not  requir- 
ing accommodation,  returned  the  paper  to  the  defendant  in  the 
same  state  in  which  he  had  received  it  from  him.  The  defendant 
then  put  it  into  a  drawer,  which  was  not  locked,  of  his  writing 
table  at  his  chambers,  to  which  his  clerk,  laundress,  and  other 
persons  coming  there  had  access.  He  had  never  authorized  Cart- 
wright or  any  person  to  fill  up  the  paper  with  a  drawer's  name, 
and  he  believed  that  it  must  have  been  stolen  from  his  chambers. 

On  these  facts  the  learned  judge  found  that  the  bill  was  stolen 


12b  General  Requisites  of  the  Contract 

from  the  defendant's  chambers,  and  the  name  of  the  drawer  after- 
wards  added  without  the  defendant's  authority;  but  that  the 
defendant  had  so  negligently  dealt  with  the  acceptance  as  to  have 
facilitated  the  theft;  he  therefore  ruled  upon  the  authority  of 
Young  v.  Grote,  4  Bing.  253,  and  Ingham  v.  Primrose,  7  C.  B. 
I  X.  S.)  82;  28  L.  J.  (C.  P.)  294,  that  the  defendant  was  liable, 
and  directed  judgment  to  be  enacted  for  the  plaintiff  for  50/.  and 
costs. 

nittlcson  (RoIIand,  with  him),  for  the  defendant. 

Jcune,  for  the  plaintiff. 

July  2.    The  following  judgments  were  delivered: — 

Bramwell,  L.J.    I  am  of  opinion  that  this  judgment  cannot 
be  supported.     The  defendant  is  sued  on  a  bill  alleged  to  have 
been   drawn    by    W.    Cartwright   on   and   accepted   by    him.      In 
very  truth  he  never  accepted  such  a  bill ;  and  if_jie_  is  to  be  held 
liable,  it  can  only  he  on  the  ground  that  he  is  estopped  to  deny 
that  he  did  so  accept  such  a  bill.     Estoppels_are  odious,  and  the 
doctrine  should  never_be  applied  without  a.  necessity  tor  it.    Jt_ 
never  can  be  applied  except  injeases  jAmere,  .thr  nprsnn   against 
od  a^X^q^-  whom  it  is  us^dJias_so  conducted  himsdf^either  in  what  he  has 
iaiQ^or^orTeTor  failed  to"  say  or  do.  that  he  would"! .unless  estoprjed/ 
r>e~saying  somethin^"1coht.rary_tohis  tormer  ^conduct  in  what  ""Hep 
HaT^aTcTor~(T5ne.  or Jailg^saj^rjdorTi  that  th~e  case  Fere? 
CeTus  examine TEeTacts!     The  defendant  drew  a  bill  (or  what 
would  be  a  bill  had  it  had  a  drawer's  name)  without  a  drawer's 
name,  addressed  to  himself,  and  then  wrote  what  was  in  terms 
an  acceptance  across  it.     In  this  condition,  it,  not  being  a  bill, 
was  stolen  from  him,  filled  up  with  a  drawer's  name,  and  trans- 
ferred to  the  plaintiff,  a  bona  fide  holder  for  value.     It  may  be 
that  no  crime  was  committed   in  the  filling  in  of  the  drawer's 
name,  for  the  thief  may  have  taken  it  to  a  person  telling  him  it 
was  given  by  the  defendant  to  the  thief  with  authority  to  get  it 
filled  in  with  a  drawer's  name  by  any  person  he,  the  thief,  pleased. 
This  may  have  been  believed  and  the  drawer's  name  bona  fide 
put  by  such  person.     T  do  not  say  such  person  could  have  recov- 
ered on  the  bill ;  T  am  of  opinion  he  could  not,  but  what  I  wish 
to  point  out  is  that  the  bill  might  be  made  ajgrnr^eJ^rMmmgnt. 
without  the  commission  of  anv_crime  in  the  completion.     But  a 
crime  was  committed  in  this  case  bv  the  stealing  of  the  document, 
and   without  that  crime  the  bill   could   not  Jiave.  been  complete. 
and  no  one  could  have  been  defrauded.    Why  is  not  the  defendant 
at l!be"rtylo "shew  this?    Why  is  he  stopped?    What  has  he  said 


nSjul 


Baxendale  v.  Bennett  127 

or  done  contrary  to  the  truth,  or  which  should  cause  any  one  to 
believe  the  truth  to  be  other  than  it  is?  Is  it  not  a  rule  that  every 
one  has  a  right  to  suppose  that  a  crime  will  not  be  committed, 
and~to"act  on  that  belief?  Where  is  the  limit  if  the  defendant  is 
estopped  here?  Suppose  he  had  signed  a  blank  cheque,  with  no 
payee,  or  date,  or  amount,  and  it  was  stolen,  would  he  be  liable 
or  accountable,  not  merely  to  his  banker  the  drawee,  but  to  a 
holder?  If  so,  suppose  there  was  no  stamp  law,  and  a  man  simply 
wrote  his  name,  and  the  paper  was  stolen  from  him,  and  some- 
body put  a  form  of  a  cheque  or  bill  to  the  signature,  would  the 
signer  be  liable  ?  I  cannot  think  so.  But  what  about  the  authori- 
ties? It  must  be  admitted  that  the  cases  of  Young  v.  Grote,  4 
Bing.  253,  and  Ingham  v.  Primrose,  7  C.  B.  (N.  S.)  82;  28 
L.  J.  (C.  P.)  294,  go  a  long  way  to  justify  this  judgment;  but  . 

in  all  those  cases,  and  in  all  the  others  where  the  alleged  maker  @  Tw-  v 
or  acceptor_has_been  held  liable,  he  has  voluntarily  parted  with,  ^-^S^»\ 
the  instrument ;  it  has  not  been  eot  from  hjm_bx..,the  commission—  (JljlXaj^/vw 
of  a  crime.     This,  undoubtedly,  is_a_distiact.ion,  and  a  real  dis^ 
tinction.      The   defendant   here   has   not   voluntarily   put    into  any 
one's  hands  the  means,  or  part  of  the  means,  for  committing  a 
crime. 

But  it  is  said  that  he  has  done  so  through  negligence.     I 
confess  I  think  he  has  been  negligent ;  that  is  to  say,  I  think  if  (^T)  '^^f^ 
he  had  had  this  paper  from  a  third  person,  as  a  bailee  bound  to  ,^$3;  <cW 
keep  it,  with  ordinary  care,  he  would  not  have  done  so.      But  e^0y-v^~~6x- 
then  this  negligence  is  not  the  proximate  or_  effective  cause  of  ^jg^^^JL.  v\ 
the  fraud      A  prime  was  necessary  for  its  completion.     Then  the  ^^    V^^J^u 
Bank  of  Ireland  v.  Evans1  Trustees,  5  H.  L.  C.  389,  shews  under  ^^   V* 
such  circumstances  there  is  no  estoppel.     It  is  true  that  was  not 
the  case  of  a  negotiable  instrument;  but  those  who  complained 
of  the  negligence  were  the  parties  immediately  affected  by  the 
forged  instrument. 

Brett,  L.J.  In  this  case  I  agree  with  the  conclusion  at  which 
by  Brother  Bramwell  has  arrived,  but  not  with  his  reasons.  The 
defendant  signed  a  blank  acceptance  and  gave  it  to  a  person  who 
wanted  money  that  he  might  get  it  discounted ;  that  person  sent 
the  blank  acceptance  back  to  the  defendant,  who  put  it  into  a 
drawer  in  his  room ;  the  room  was  not  a  place  of  general  resort, 
and  the  drawer  into  which  the  acceptance  was  put  was  left 
unlocked ;  somebody,  not  a  servant  of  the  defendant,  stole  it,  and 
it  was  filled  up  by  a  different  person  from  him  to  whom  the 
acceptance  was  originally  given  and  who  had  returned  it.  On 
these  facts,  Lopes,  J.,  held  that  the  defendant  had  been  guilty  of 


12b  General  Requisites  of  the  Contract 

negligence,  and  was  therefore  liable  on  the  bill  to  the  plaintiff. 

Bramwell,  L.J.,  says  that  the  defendant  is  not  liable,  because 
if  he  be  guilty  of  negligence,  the  negligence  is  not  the  proximate 
or  effective  cause  of  the  fraud.  It  seems  to  me  that  the  defendant 
never  authorized  the  bill  to  be  filled  in  with  a  drawer's  name,  and 
he  cannot  be  sued  on  it.  I  do  not  think  it  right  to  say  that  the 
defendant  was  negligent.  The  law  as  to  the  liability  of  a  person 
who  accepts  a  bill_in  blank,  is  that  he  gives  an  apparent  authority 
to  the  person  to_wjigmJie_issu£5.  it  to  fill  it.  upjojthe  amount  that 
tin-  stamp  will  coyer;  he  does  not  strictly  authorize  him,  but 
enables  him  to  fill  it  up  to  a  greater  amount  than  was  intended. 
Where  a  man  has  signed  a  blank  acceptance,  and  has  issued  it, 
and  has  authorized  the  holder  to  fill  it  up,  he  is  liable  on  the  bill, 
whatever  the  amount  may  be,  though  he  has  given  secret  instruc- 
tions to  the  holder  as  to  the  amount  for  which  he  shall  fill  it  up ; 
he  has  enabled  his  agent  to  deceive  an  innocent  party,  and  he  is 
liable.  Sometimes  it  is  said  that  the  acceptor  of  such  a  bill  is 
liable  because  bills  of  exchange  are  negotiable  instruments,  cur- 
rent in  like  manner  as  if  they  were  gold  or  bank  notes;  but 
whether  the  acceptor  of  a  blank  bill  is  liable  on  it  depends  upon 
his  having  issued  the  acceptance JnjggdJag-iL-to  be  used.  No  case 
has  been  decided  where, the  acceptor  has  been  held  liable  if  the 
instrument  has  not  been  delivered  by  the  acceptor  to  another  per- 
son. 

In  this  case  it  is  true  that  the  defendant  after  writing  his 
name  across  the  stamped  paper  sent  it  to  another  person  to  be  used. 
When  he  sent  it  to  that  person,  if  he  had  filled  it  in  to  any  amount 
that  the  stamp  would  cover  the  defendant  would  be  liable,  because 
he  sent  it  with  the  intention  that  it  should  be  acted  upon;  but  it 
was  sent  back  to  the  defendant,  and  he  was  then  in  the  same  con- 
dition as  if  he  had  never  issued  the  acceptance.  The  case  is  this : 
the  defendant  accepts  a  bill  and  puts  it  into  his  drawer,  it  is  as 
if  he  had  never  issued  it  with  the  intention  that  it  should  be  filled 
up ;  it  is  as  if  after  having  accepted  the  bill  he  had  left  it  in  his 
room  for  a  moment  and  a  thief  came  in  and  stole  it.  He_has_ 
never  intended  that  theJ^_shciuld^eJHled_u_p  by  anyd3Qdy_and_ 
no  person  was  his  agent  to  fill  it  up. 

Then  it  has  been  said  that  the  defendant  is  liable  because  he 
has  been  negligent ;  but  was  the  defendant  negligent  ?  As  observed 
by  l.lackburn,  J.,  in  Swan  v.  North  British  Australasian  Com- 
pany, 2  H.  &  C.  175;  32  L.  J.  (Ex.)  273,  there  must  be  the 
neglect  of  some  duty  owdng  to  some  person — here  how  can  the 
defendant  be  negligent  who  owes  no  duty  to  anybody — against 


Baxendale  v.  Bennett  129 

whom  was  the  defendant  negligent,  and  to  whom  did  he  owe  a 
duty  ?  He  put  the  bill  into  a  drawer  in  his  own  room ;  to  say 
that  was  a  want  of  due  care  is  impossible ;  it  was  not  negligence 
for  two  reasons,  first,  he  did  not  owe  any  duty  to  any  one.  anda 
secondly,  he  did  not  act  otherwise  than  in  a  way  which  an  ordi- 
1 )  a  ry  careful  man  would  act 

As  to  the  authorities  that  have  been  cited ;  in  Schults  v.  Ast-  ^f^jS^J^^- 
ley,  4  Bing.  N.  C.  544,  the  blank  acceptance  had  been  filled  up 
by  a  stranger  and  a  fraud  had  been  committed ;  nevertheless,  the 
acceptor  was  held  to  be  liable.  There,  however,  the  acceptance 
had  been  issued  and  it  was  intended  that  it  should  be  filled  up  by 
someone;  but  Crompton,  J.,  in  Stoessiger  v.  South  Eastern  Ry. 
Co.,  3  E.  &  B.  at  p.  556,  said  that  case  had  gone  to  the  utmost 
extent  of  the  law.  I  do  not  think  that  the  doctrine  there  laid 
down  ought  to  be  extended.  In  Ingham  v^Primruie,  7  C.  B.  (N.  crv>JUxrN>*-*A 
S.)  82  ;  28  L.  J.  (C.  P.)  294,  the  acceptor  of  a  bill  of  exchange,  with 
the  intention  of  cancelling  it,  tore  it  into  two  pieces  and  threw 
them  into  the  street,  they  were  picked  up  by  the  indorser,  joined 
together,  and  the  bill  was  put  into  circulation.  The  acceptor  was 
held  liable  because,  said  the  court,  although  he  did  intend  to 
cancel  it,  yet  he  did  not  cancel  it.  It  seems  to  me  to  be  difficult 
to  support  that  case,  and  the  correct  mode  of  dealing  with  it  is  to         -     •  . 

say  we  do  not  agree  with  it.  In  Young  v.  Grote,  4  Bing.  253,  w^-**-  (^ 
Young  left  a  blank  cheque  with  his  wife  and  in  filling  up  the 
cheque  for  fifty  pounds  the  word  fifty  was  written  in  the  middle 
of  the  line,  ample  space  being  left  for  the  insertion  of  other  words. 
By  a  forgery,  before  the  word  fifty,  the  words  "three  hundred 
and"  were  inserted.  Notwithstanding  the  forgery  the  court  held 
Young  liable.  It  is  said  that  the  case  may  be  upheld  on  the 
ground  that  Young  owed  a  duty  to  his  own  bankers,  and  that 
he  was  guilty  of  negligence  in  not  drawing  his  cheques  on  them 
with  ordinary  care,  but  that_cas_e  does  not  govern  the  present,  it 
only. .applies^  to  cases  between  bankers  and  mere  customers.  In 
Bank  of  Ireland  v.  Evans'  Charity  Trustee,  5  H.  L.  C.  389,  Parke, 
B.,  in  delivering  the  opinion  of  the  judges  in  the  House  of  Lords 
remarks,  with  reference  to  Young  v.  Grote,  4  Bing.  253,  "In  that 
case  it  was  held  to  have  been  the  fault  of  the  drawer  of  the 
cheque  that  he  misled  the  banker  on  whom  it  was  drawn  by  want 
of  proper  caution  in  the  mode  of  drawing  the  cheque,  which 
admitted  of  easy  interpolation,  and  consequently  that  the  drawer, 
having  thus  caused  the  banker  to  pay  the  forged  cheque  by  his 
own  neglect  in  the  mode  of  drawing  the  cheque  itself,  could  not 
complain  of  that  payment."    He  then  gives  instances  in  which  a 


130  General  Requisites  of  the  Contract 

person  would  not  be  liable  and  which  govern  the  present  case. 
"I  i  a  man  should  lose  his  cheque  book  or  neglect  to  lock  his  desk 
in  which  it  is  kept  and  a  servant  or  stranger  should  take  it,  it  is 
impossible,  in  our  opinion,  to  contend  that  a  banker  paying  his 
forged  cheque  would  be  enabled  to  charge  his  customer  with  that 
payment.  Would  it  be  contended  that,  if  he  kept  his  goods  so 
negligently  that  a  servant  took  them  and  sold  them,  he  must  be 
considered  as  having  concurred  in  the  sale  and  so  be  disentitled 
to  sue  for  their  conversion  on  a  demand  and  refusal?"  Lord 
Cranworth,  speaking  of  Young  v.  Grote,  4  Bing.  253,  says  that 
case  went  upon  the  ground,  whether  correctly  arrived  at  in  point 
of  fact  is  immaterial,  that  in  order  to  make  negligence  a  good 
answer  there  must  be  something  that  amounts  to  an  estoppel  or 
ratification — "that  the  plaintiff  was  estopped  from  saying  that  he 
did  not  sign  the  cheque,"  and  then  he  says  the  doctrine  of  ratifi- 
cation is  well  illustrated  by  Coles  v.  Bank  of  England,  10  A.  &  E. 
437.  I  think  the  observations  made  by  the  Lords  in  the  case  of 
Bank  of  Ireland  v.  Brans'  Charity  Trustees,  5  H.  L.  C.  389,  have 
shaken  Young  v.  Grote,  4  Bing.  253,  and  Coles  v.  Bank  of  Eng- 
land, 10  A.  &  E.  437,  as  authorities.  In  the  present  case  I  think 
_there  was  no  estoppel,  no  ratification,  and  no  negligence,  and  that 
the  defendant  is  entitled  to  our  judgment. 

Baggallay,  L.J.,  concurred  that  the  judgment  ought  to  be 
entered  for  the  defendant. 

Judgment  [or  the  defendant. 


Ledwich  v.  McKim  (1873),  53  N.  Y.  307. 

Appeal  from  judgment  of  the  General  Term  of  the  Superior 
Court  of  the  city  of  New  York  in  favor  of  plaintiff,  entered  upon 
an  order  denying  motion  for  a  new  trial  and  directing  judgment 
on  a  verdict. 

This  action  was  brought  to  recover  back  the  purchase-money 
alleged  to  have  been  paid  to  defendants  by  plaintiff's  assignor, 
William  B.  Scranton,  upon  the  purchase  of  certain  railroad 
bonds,  upon  the  ground  of  failure  of  title. 

On  the  16th  of  October,  1865,  William  B.  Scranton,  plain- 
tiff's assignor,  bought  of  defendants  ten  instruments,  purporting 
to  be  bonds  of  the  Vicksburg,  Shreveport  and  Texas  Railroad 
Company,  each  bearing  date  September  Tst,  1857,  and  professing 
to  bind  the  company  to  pay  to  bearer  "the  sum  of  either  two 


Ledwich  v.  McKim  131 

hundred  and  twenty-five  pounds  sterling,  or  one  thousand  dollars, 
lawful  money  of  the  United  States  of  America,  to  wit:  two 
hundred  and  twenty-five  pounds  sterling,  if  the  principal  and 
interest  are  payable  in  London,  and  one  thousand  dollars,  lawful 
money  of  the  United  States  of  America,  if  the  principal  and 
interest  are  payable  in  New  York  or  New  Orleans."  To  each 
of  the  instruments  were  attached  forty  interest  warrants  or 
coupons  for  the  payment  of  "nine  pounds  sterling"  each  if  pay- 
able "in  London,"  or  forty  dollars  if  payable  in  "New  York  or 
New  Orleans,"  the  first  of  said  coupons  falling  due  on  the  ist  of 
March,  1858,  and  one  falling  due  every  six  months  thereafter. 
In  the  body  of  each  instrument  it  is  provided  that  "the  president 
of  the  company  is  authorized  to  fix  by  his  indorsement  the  place 
of  payment  of  the  principal  and  interest,  in  conformity  with  the 
tenor  of  this  obligation."  Indorsed  on  each  instrument  were  the 
words : 

"I    hereby   agree   that   the   within   bonds   and   the    interest 

coupons  thereto  attached  shall  be  payable  in  . 

"C.  G.  Young,  President." 

Scranton  on  the  same  day  on  which  he  purchased  the  bonds 
of  defendants  sold  them  to  Scott,  Zerega  &  Co.  It  subsequently 
transpired  that  the  bonds  had  never  been  issued  by  the  railroad 
company;  that  during  the  war,  viz.,  in  April,  1864,  the  company's 
office,  at  Monroe,  Louisiana,  had  been  forcibly  entered  by  United 
States  soldiers,  its  safe  broken  open,  and  the  contents,  including 
the  bonds  in  question,  carried  off.  As  soon  as  practicable  the 
company  advertised  the  loss  of  the  bonds,  giving  notice  of  the 
manner  of  their  abstraction,  and  warning  the  public  that  they 
would  not  be  paid.  On  learning  these  facts  Scranton,  as  he  tes- 
tified, called  on  defendants,  tendered  them  the  bonds  (which 
Scott,  Zerega  &  Co.  had  placed  at  his  disposal),  and  demanded 
a  return  of  the  consideration  money,  which  tender  and  demand 
defendants  refused  to  accept  or  comply  with.  Recognizing  his 
liability  to  refund  to  Scott,  Zerega  &  Co.  the  price  which  they 
had  paid  him  for  the  bonds,  Scranton  assigned  to  plaintiff  his 
claim  against  defendants  arising  out  of  the  facts  above  mentioned. 

Other  facts  appear  in  the  opinion. 

Plaintiff  recovered  a  verdict  for  the  amount  paid  for  the 
bonds  and  interest.  Exceptions  were  ordered  to  be  heard  at  first 
instance  at  General  Term. 

Samuel  Hand,  for  the  appellants. 
James  Clark,  for  the  respondent. 


132  General  Requisites  of  the  Contract 

Folger,  J.  The  plaintiff  puts  his  right  of  action  upon  the 
ground,  that  the  defendants  sold  to  his  assignor  these  instru- 
ments, being  personal  property,  without  having  any  title  thereto, 
and  that  hence  they  are  liable  upon  their  implied  warranty  of 
title.  It  is  not  to  be  disputed  that,  if  these  papers  are  other  than 
negotiable  instruments,  there  was  in  the_^ale_of  them  by  the 
dj^fgndants  an  implied  warranty  of  their  title  to  them,  and  that 
on  a  failure  of  title  they  are  liable.  The  defendants  insist,  how- 
ever, that  they  only  impliedly  warrant  the  genuineness  of  the 
execution  of  the  instrument.  In  this  they  err.  (Murray  v.  Judah, 
6  Cow.  484.)  The  seller  warrants  the  genuineness  of  the  instru- 
ment, and  that  it  is  what  it  purports  to  be.  (Gurncy  v.  IVomcrs- 
ley,  28  Eng.  L.  &  Eq.  256;  see  Thrall  v.  Newell,  19  Vt.  202.) 

It  is  established  by  the  proofs  and  verdict,  that  the  instru- 
ments were  stolen  from  the  railroad  corporation,  whose  obliga- 
tions they  purport  to  be.  It  follows  that  the  defendants  could 
acquire  no  title  to  them,  unless  they  bring  them  and  bring  them- 
sdves,~witHjn  the  rules  which  protect  theTbona  fide  holder  tor 
value  oT  commercial  paper.  The  bonds  of  a  railroad  corporation, 
if  they  possess  the  requisites  for  negotiable  paper,  fall  into  that 
class  of  instruments,  and  are  to  be  dealt  with  and  disposed  of  by 
an  application  of  the  same  legal  principles.  But  jLJiej^otiable, 
instrument  must  be  a  complete  and  perfect  instrument  when  it  is. 
issued,  or  then^rn^stJjejmtiTpn^  one,  afterward 

to  supply  anything  needed  to  make  it  perfect.  (The  Norwich 
Bank  v.  Hyde,  13  Conn.  279;  Exon  v.  Russell,  4  M.  &  S.  505; 
Woodzvorth  v.  Bank  of  America,  19  J.  R.,  391.)  It  is  evident 
upon  the  face  of  these  papers  that  they  were  meant  to  have  a 
specific  place  of  payment,  and  that  the  kind  of  national  money 
in  which  they  were  to  be  paid  and  the  amount  thereof  were  also 
to  be  specific,  and  that  all  of  this  was  yet  to  be  specified  when 
they  came  into  and  out  of  the  hands  of  the  defendants.  Now  ,an 
exart  place  of  payment,  when  a  place  of  payment  is  meant  to  be 
fi x pd,_and_an  exact  amount  to  be  paid,  are  essential  parts  of  a 
negotiable  instrument.  (See  cases  last  cited,  supra.)  In  Welch 
v.  Sage  (47  N.  Y.  143),  cited  by  the  defendants,  the  bonds  were 
perfect  and  negotiable  without  the  certificate  which  had  been 
detached.  (Seepage  T48.)  These  instruments  were  not  perfect 
wheriJheypa^sjd_from_the  possession  of  tin-  defendants  to  thai 
of  the  plaintiff's  assignor.  It  was" "noFThen  "SeterrnTnecl  where 
they  were  to  be  paid  nor  in  what  national  money  they  were  to  be 
paid,  neither  the  principal  nor  the  interest.  This  was  uncertain, 
until  by  lawful  authority,  a  space  left  for  the  purpose,  was  filled 


Ledwich  v.  McKim  133 

with  the  name  of  the  place  of  payment.  The  corporation  had 
given  power  to  their  president  to  fill  this  blank,  which  power  he 
had  not  exercised  in  fact.  This  was  apparent  to  the  defendants 
and  to  all  others  dealing  with  them.  It  was  plain  that  the  instru- 
ments were  still  imperfect  and  incomplete,  and  that  they  were  so 
when  they  left  the  possession  of  the  railroad  corporation.  It  is 
incumbent  then  upon  the  defendants,  to  show  that  there  is  right- 
ful authority  elsewhere  than  in  the  corporation  or  its  president 
to  fill  the  blanks  and  make  these  bonds  perfect  instruments.  •  The 
defendants.. contend  that  they  or  any  holder  of  these  instruments, 
seeing  the  indorsement  of  the  president  in  blank,  would  undoubt- 
edly and  justly  regard  themselves  as  authorized  to  fill  the  blank. 
Cases  are  cited  to  sustain  this  proposition.  In  all  of  them,  how- 
ever, there  is  an  authority  from  the  party  to  be  bound,  to  him  to 
whom  the  paper  was  intrusted,  for  the  filling  of  the  blank,  or  an 
actual  intrusting  of  it  to  him  upon  some  confidence  as  to  its  use 
or  disposition.  This  authority  is  either  express,  or  it  is  implied 
from  an  actual  delivery  for  future  use,  of  the  instrument,  though 
still  in  its  imperfect  condition.  As  to  an  express  authority  there 
can  be  no  question  or  doubt.  The  implied  authority  is  found  in 
the  fact  of  delivery  for  use.  For  as  it  is  not  to  be  presumed  that 
the  delivery  for  use  was  meant  to  be  a  nugatory  and  unavailing 
act,  and  as  it  is  apparent  that  it  would  be,  if  the  instrument  may 
not  be  perfected  before  put  to  use,  the  law  implies  an  intention  and 
hence  an  authority,  that  he  to  whom  it  is  thus  delivered,  may 
supply  all  needs  for  making  it  a  perfect  and  binding  negotiable 
instrument.  But  this  authority  is  not  implied  from  the  fact  alone, 
thatjhe_paper  is  in  hands  other  than  those  of  him  who  is  to  be 
bound,  but  from  the  fact  joined  with  this  other  fact,  that  it  has 
been  by  him  intrusted  to  those  hands  for  the  purpose  and  with 
the  intent  that  it  shall  go  into  use  and  circulation.  And  an  express 
authority,  though  it  be  limited,  if  it  be  exceeded  by  the  one  in 
whom  confidence  has  been  reposed,  renders  the  party  to  the 
instrument  liable  to  a  bona  fide  holder  for  value,  on  the  principle 
that  of  two,  one  of  whom  must  suffer  by  the  wrongful  act  of  a 
third,  it  should  be  he  who  has  enabled  the  wrongful  act  to  be 
done.  But  there  cannot  be  an  enabling  of  the  wrongful  act,  unless 
there  be  assisting  action  of  the  party  to  the  instrument  who  is 
sought  to  be  bound,  and  there  must  be  that  in  his  conduct,  in 
relation  to  the  paper,  which  shows  a  parting  with  the  possession 
of  it  for  use,  or  with  a  confidence  in  him  to  whom  it  is  delivered. 
The  liability  of  the  maker  of  the  instrument  is  put  upon  his 
act  in  sending  it  into  the  world  in  its  imperfect  form  (Cruchley  v. 


134  General  Requisites  of  the  Contract 

Clarancc,  2  M.  &  S.,  90),  or  upon  an  authority  given  or  confidence 
reposed  in  the  one  put  into  possession  of  the  instrument,  that  he 
should  do  that  with  it  which  should  set  it  afloat  on  the  currents 
of  business.  {Van  Duzcr  v.  Howe,  21  N.  Y.,  531.)  In  the  last 
case  cited,  Denio,  J.,  says,  that  the  principle  which  lies  at  the 
foundation,  is  that  thejnaker,  who  by  puttingjiis  paper  in  circular; 
tion  has  invited  the  public  to  receive  it  of  any  one  having-  it  in 
possession  with  apparent  titlejis  estopped  to  urge  the  actual  defect 
of  title  against  a  bona  fide  holder.  So  far  has  this  gone,  that  it 
has  been  held  that  this  authority  is  revoked  by  the  death  of  the 
party  sought  to  be  bound,  so  that  one  taking  paper  indorsed  by 
him,  and  intrusted  by  him  to  another  for  use  while  yet  in  an  imper- 
fect state,  may  not  recover  on  it  against  the  estate  of  the  deceased 
indorser.  {Mich.  Ins.  Co.  v.  Leavenworth,  30  Vt,  11.)  And  this 
court  has  held  that  when  a  negotiable  instrument  is  in  hands 
to  which,  prima  facie,  it  has  not  come  in  the  regular  course  of  bus- 
iness, it  Ts  taken  by  a  third  party  at  his  peril.  {Central  Bank  v. 
Hammctt,  50  N.  Y.,  158.)  No  authority  has  been  cited,  which 
decides  that  the  maker  of  an  instrument,  negotiable  but  for  some 
lack  susceptible  of  being  supplied,  so  that  it  is  yet  imperfect,  who 
has  not  by  his  own  act,  or  by  the  act  of  another  authorized  or 
confided  in  by  him,  put  it  in  circulation,  confers  a  power  upon  even 
a  bona  fide  holder  to  supply  that  lack.  He  must  have  been  himself 
instrumental  in  its  leaving  his  possession  and  control  and  passing 
into  that  of  another,  and  have  been  so  with  the  purpose  of  its 
becoming  effectual  for  circulation,  or  with  some  trust  in  the  per- 
son to  whom  committed,  before  he  can  be  held  liable.  He  must 
in  some  way  and  for  some  purpose  have  created  an  agency  in  some 
one  to  act  with  or  to  hold  the  paper ;  and  to  find  an  authority  in 
a  subsequent  holder  to  make  perfect  the  imperfect  paper,  this 
agency  must  first  be  established.  The  remarks  of  Byles,  J.,  in  2 
Hurlst.  &  Colt.,  184,  cited  and  relied  upon  by  the  defendants,  are 
qualified  by  him  in  Foster  v.  MacKinnon  (4  L.  R.  Com.  PL,  709), 
where  he  says,  that  if  they  be  right,  it  can  only  be  with  reference 
to  a  complete  instrument.  There  was  no  such  instrumentality 
on  the  part  of  this  railroad  corporation.  On  the  contrary,  it 
appears  that  it  had  no  part  in  the  bonds  going  out  of  its  possession, 
but  was  despoiled  of  them  by  superior  force. 

The  defendants  claim  that  there  was  a  failure  of  the  proof 
to  sustain  the  allegations  of  the  complaint,  and  that  their  motion 
to  dismiss  the  complaint  should  have  been  granted.  The  com- 
plaint, they  say,  substantially  averred  a  cause  of  action  arising 
from  false  representations,  which  is  an  action  ex  delicto;  and  that 


Ledwich  v.  McKim  135 

proof  of  a  breach  of  an  implied  warranty  of  title,  being  matter  of 
contract,  will  not  sustain  a  complaint  for  the  cause  averred.  It 
is  true  that  the  complaint  avers  that  the  defendants  represented 
these  instruments  to  be  the  bonds  of  the  railroad  corporation, 
issued  by  and  binding  upon  it,  and  that  the  plaintiff's  assignor 
relied  upon  these  representations.  But  the  summons  is  not  for 
relief.  It  is  for  money.  The  complaint  avers  the  facts  which 
were  proven  and  which  make  out  a  cause  of  action  in  contract. 
The  presence  of  the  averment  as  to  the  representations,  even  were 
they  averred  to  have  been  false  and  fraudulent,  do  not  make  the 
action  one  ex  delicto.     (See  Co  naughty  v.  Nichols,  42  N.  Y.,  83.) 

The  defendants  also  moved  to  dismiss  the  complaint,  on  the 
ground  that  no  damages  had  been  proven  to  have  been  sustained 
by  the  plaintiff.  Whatever  other  answer  might  be  made  to  this 
motion,  it  did  appear  that  the  mortgage,  given  by  the  railroad 
company  as  a  security  for  the  bonds  of  which  these  instruments 
were  supposed  to  be  a  part,  had  been  foreclosed,  and  the  property 
covered  by  it  sold  and  moneys  realized  thereon.  If  these  instru- 
ments had  been  genuine,  the  plaintiff  or  his  assignor  would  have 
had  a  right  to  share  in  a  division  of  this  sum  among  the  bond- 
holders. It  would  doubtless  have  been  a  small  dividend  which 
would  have  been  received ;  but  however  small,  if  appreciable,  the 
plaintiff  was  entitled  to  it,  and  entitled  to  a  verdict  for  that 
amount.  So  that  a  motion  to  dismiss,  for  the  reason  stated,  was 
properly  denied.  And  whatever  the  damages  were,  the  plaintiff 
had  a  right  to  them,  as  assignee  (see  Bordivell  v.  Collie,  45  N. 
Y.,  4^4),  and  though  he  should  receive  them  not  for  himself,  but 
for  others,  represented  by  him,  who  were  the  real  parties  in  inter- 
est, he  being  a  trustee  of  an  express  trust.  To  the  rule  of  dam- 
ages, as  stated  to  the  jury  in  the  charge  of  the  court,  there  was 
no  exception  taken. 

The  defendants  offered  to  read  in  evidence,  certain  papers 
which  it  was  claimed  would  show  a  submission  of  this  contro- 
versy to  arbitration,  and  an  award  in  favor  of  the  defendants. 
These  were  not  competent  to  be  admitted  in  bar  of  the  plaintiff's 
action.  The  jury  have  found,  upon  the  question  being  submitted 
to  them,  that  the  plaintiff's  assignor  bought  the  instruments  for 
himself.  As  it  was  not  claimed  that  he  was  a  party  to  the  sub- 
mission, the  papers  were  not  competent  evidence  against  him  in 
direct  bar  of  his  action.  They  were  not  competent  as  admissions 
of  a  party  in  interest,  until  it  was  established  that  he  by  whom 
they  were  made  was  such ;  nor  could  they  until  then  be  received 
to  assist  in  establishing  the  fact  of  his  interest.     The  immediate 


18b  General   Requisites  of  the  Contract 

issue  was,  what  were  the  mutual  rights  of  the  plaintiff's  assignor 
and  of  Zarega  &  Co.  at  the  time  of.  the  purchase  hy  the  former 
of  these  instruments,  neither  of  them  being  parties  on  the  record 
in  this  action.  The  rule  is,  that  this  inquiry  lets  in  such  evidence 
as  would  have  been  receivable  between  those  persons.  ( I  Phil. 
on  Ev.,  465,  [490],  chap.  8,  §  10.)  The  declarations  of  Zarega 
would  not  have  been  competent  in  his  favor  against  the  plaintiff's 
assignor,  and  were  not  admissible. 

But  it  is  claimed  that,  if  not  competent  in  bar  of  the  plain- 
tiff's action,  they  were  admissible  on  the  collateral  issue  of  the 
credibility  of  the  witness  Zarega.  He  had  testified  that  his  house 
did  not  buy  the  bonds  from  the  defendants,  but  did  buy  them  of 
Scranton,  the  plaintiff's  assignor.  One  defence  set  up  in  the 
answer  was  that  the  bonds  were  sold  by  the  defendants  to  that 
house,  and  that  afterward,  on  claim  by  it,  there  was  a  submission 
to  arbitrators  and  award  in  the  defendants'  favor.  It  was  material 
to  this  issue,  the  testimony  he  had  given,  and  it  was  on  a  material 
point  that  the  defendants  now  claim  that  they  sought  to  contradict 
him.  And  the  papers  offered,  if  shown  to  have  been  signed  by 
or  with  the  knowledge  of  Zarega,  or  to  have  come  to  his  knowl- 
edge, were  pertinent  for  that  purpose ;  but  there  was  no  proof  of 
this. 

The  defendants'  request  to  charge,  it  was  not  error  for  the 
court  to  refuse.  There  was  testimony  by  Scranton  from  which 
the  jury  could  find  that  he  tendered  a  return  to  the  defendants 
of  the  same  instruments  purchased  of  them. 

The  judgment  should  be  affirmed,  with  costs  t©  the 
lespondent- 

All  concur.  Judgment  affirmed. 

SIGNING  IN   TRADE  OR  ASSUMED   NAME.  §  20. 

Jones  v.  Home  Furnishing  Co.  (1896),  0  A  pp.  Div.  Rep.  (N.  Y.) 
103,  41  N.  Y.  Sup  p.  7T. 

Appeal  by  the  defendant,  the  Home  Furnishing  Company, 
from  three  judgments  of  the  County  Court  of  the  County  of 
Kings,  entered  in  the  office  of  the  clerk  of  the  County  of  Kings  on 
the  1  st  day  of  April,  1896,  upon  the  decision  of  the  court  affirm- 
ing three  judgments  rendered  by  a  justice  of  the  peace  of  the 
City  of  Brooklyn. 

R.  W.  Newhall,  for  the  appellant. 
John  B.  Green,  for  the  respondent. 


Jones  v.  Home  Furnishing  Co.  137 

Hatch,  J. :  Separate  actions  were  brought  upon  three  prom- 
issory notes.  The  notes,  which  were  made  payable  to  the  order 
of  "National  Publishing  Company,"  and  were  signed  by  the 
defendant  through  its  president,  were  each  in  the  same  form. 
excepting  the  dates  and  amounts.  The  defendant  is  a  domestic 
corporation,  having  its  place  of  business  in  Brooklyn.  The  Na- 
tional Publishing  Company  is  a  name  assumed  by  plaintiff  in 
carrying  on  his  business,  and  represents  nothing  beyond  that 
assumption.  It  is  conceded  that  the  notes  were  each  given  for  a 
valuable  consideration  received  by  the  defendant  from  the  plain- 
tiff, but  the  claim  is  made  that  the  notes  were  made  payable  to  a 
company  that  had  no  existence,  and  that,  therefore,  the  paper  was 
fictitious;  and  that  as  the  indorsement  was  fictitious  and  spuri- 
ous no  title  passed  to  the  notes.  This  defense  savors  of  delay 
and  the  use  of  legal  remedies  to  prevent  collection  of  a  bona^ 
fide  debt.  The  notes  were  as  much  payable  to  Jones  when  they 
were  made  payable  to  the  name  under  which  he  carried  on  his 
business  as  though  he  had  been  named  therein.  It  was  not  in 
legal  contemplation  a  fiction,  but  it  was  the  plaintiff  under  this 
business  name  and  represented  him.  When  the  notes  were  made 
and  delivered  to  plaintiff  under  these  conditions  they  created  a 
liability  against  the  defendant  in  plaintiff's  favor;  and  had  the 
complaint  set  out  the  fact  that  the  payee  was  the  plaintiff's  busi- 
ness name,  and  that  the  notes  were  so  made  payable  on  account 
thereof,  there  would  be  little  doubt  that  defendant  would  not  have 
had  the  temerity  to  interpose  a  defense.  Atthe  most,  the  question 
now  here  is  one  of  pleading,  as  plaintiff  has  made  the  usual  alle- 
gation  of  delivery  to  the  payee  and  indorsement  by  it  to  the 
plaintiff.  But  the  facts  were  all  known  before  issue  was  joined 
and  when  the  trial  was  had.  The  complaint,  therefore,  will  be 
deemed  amended  in  accordance  with  the  facts.  The  notes  in 
plaintiff's  hands  are  subsisting  liabilities  against  the  defendant  in 
his  favor.  (Mechanics'  Bank  v.  Straiten,  3  Keyes.  365;  Maniort 
v.  Roberts,  4  E.  D.  Smith,  83.)  These  notes  having  been  given 
for  bona  fide  debt_s,  and  delivered  to  the  plaintiff,  defendant  is 
estoppedjfrom  setting  up  as  against  plaintiff  that  they  were  made 
payable  to  a  fictitious  pavce^Jf  by  such  averment  the  notes  would 
be~defeated  in  plaintiff's  hands.  (Irving  Nat.  Bank  v.  Alley,  79 
N.  Y.  536.) 

The  judgments  appealed  from  should  be  affirmed,  with  costs. 

All  concurred. 

Judgments  affirmed,  with  costs. 


138  Signature  by  Procuration 

signature  by  procuration.  §  23. 

Attwood  et  al.  v.  Mannings  {1827),  7  B.  &  C.  278,  4  Eng.  Rid. 

Cos.  364. 

Assumpsit  by  the  plaintiffs,  as  indorsees,  against  the  defend- 
ant, as  acceptor  of  a  bill  of  exchange  for  1560/.  Plea,  the  general 
issue.  At  the  trial  before  Lord  Tenderden,  C.  J.,  at  the  Lon- 
don sittings  after  Michaelmas  term,  1823,  a  verdict  was  found 
for  the  plaintiffs,  subject  to  the  opinion  of  this  court  on  the  fol- 
lowing case : 

The  plaintiffs  were  bankers  carrying  on  business  in  the  city 
of  London ;  the  defendant  was  a  merchant  engaged  in  extensive 
mercantile  business,  and  also,  in  joint  speculations  to  a  consider- 
able amount,  with  Thomas  Burleigh,  Messrs.  Bridges  and  Elmer, 
S.  Howlett,  and  W.  Rothery.  In  the  year  1815  the  defendant  went 
abroad  on  the  partnership  business,  and  remained  abroad  till  after 
the  bill  upon  which  this  action  was  brought  became  due.  By  a 
power  of  attorney,  dated  the  18th  of  May,  1816,  the  defendant 
granted  power  to  W.  Rothery,  T.  Burleigh,  and  S.  Munnings,  his 
wife,  jointly  and  severally  for  him,  and  in  his  name,  and  to  his 
use,  to  sue  for  and  get  in  monies  and  goods,  to  take  proceedings, 
and  bring  actions,  to  enforce  payment  of  monies  due,  to  defend 
actions,  settle  accounts,  submit  disputes  to  arbitration,  sign  receipts 
for  money,  accept  compositions ;  "indorse,  negotiate,  and  discount, 
or  acquit  and  discharge  the  bills  of  exchange,  promissory  notes, 
or  other  negotiable  securities  which  were  or  should  be  payable  to 
him,  and  should  need  and  require  his  indorsement ;"  to  sell  his 
ships,  execute  bills  of  sale,  hire  on  freight,  effect  insurances; 
"buy,  sell,  barter,  exchange,  export  and  import  all  goods,  wares, 
and  merchandises,  and  to  trade  in  and  deal  in  the  same,  in  such 
manner  as  should  be  deemed  most  for  his  interest ;  and  generally 
for  him  and  in  his  name,  place,  and  stead,  and  as  his  act  and  deed, 
or  otherwise,  but  to  his  use,  to  make,  do,  execute,  transact,  per- 
form, and  accomplish  all  and  singular  such  further  and  other  acts, 
deeds,  matters,  and  things  as  should  be  requisite,  expedient,  and 
advisable  to  be  done  in  and  about  the  premises,  and  all  other  his 
affairs  and  concerns,  and  as  he  might  or  could  do  if  person- 
ally acting  therein."  By  another  power  of  attorney,  dated  the 
23d  of  July,  1 81 7,  and  executed  by  the  defendant  when  abroad, 
he  gave  to  his  wife,  S.  Munnings,  power  to  do  a  variety  of  acts 
affecting  his  real  and  personal  property ;  "and  also  for  him  and 


Attwood  et  al.  v.  Munnings  139 

on  his  behalf,  to  pay  and  accept  such  bill  or  bills  of  exchange  as 
should  be  drawn  or  charged  on  him  by  his  agents  or  correspond- 
ents as  occasion  should  require,  &c. ;  and  generally  to  do,  nego- 
tiate, and  transact  the  affairs  and  business  of  him,  defendant, 
during  his  absence,  as  fully  and  effectually  as  if  he  were  present 
and  acting  therein."  T.  Burleigh  corresponded  with  the  defend- 
ant, and  acted  as  his  agent,  both  before  and  after  the  receipt  of 
this  power.  The  defendant,  while  abroad,  employed  part  of  the 
produce  of  the  joint  speculations  in  his  individual  concerns,  and 
during  his  absence,  T.  Burleigh,  for  the  purpose  of  raising  money 
to  pay  creditors  of  the  joint  concern,  who  were  become  urgent,  drew 
four  bills  of  exchange  for  500/.  each  upon  the  defendant,  dated  May 
22d,  1819.  The  proceeds  of  those  bills  were  applied  in  payment 
of  partnership  debts;  they  were  accepted  by  the  defendant  by 
procuration  of  S.  M.,  his  wife.  The  bill  in  question  was  after- 
wards, in  order  to  raise  money  to  take  up  those  bills,  drawn  and 
accepted  in  the  following  form : — "Six  months  after  date  pay  to 
my  order  1 560/.,  for  value  received:  T.  Burleigh.  Accepted  per 
procuration  of  G.  G.  H.  Munnings. — S.  Munnings."  This  bill 
was  discounted  by  the  plaintiffs.  The  defendant  returned  to  Eng- 
land in  October,  1821,  and  he,  and  each  of  the  partners  to  the 
joint  speculations,  claimed  to  be  a  creditor  on  that  concern. 

Bayley,  J.  This  was  an  action  upon  an  acceptance  import- 
ing to  be  by  procuration,  and,  therefore,  any  person  taking  the 
bill  would  know  that  he  had  not  the  security  of  the  acceptor  s 
signature,  but  of  the  party  professing  to  act  in  pursuance  of  an 
authority  from  him.  A  person  taking  such  a  bill,  ought  to  exer~ 
cise  due  caution,  for  he  must  take  it  upon  the  credit  of  the  party 
who  assumes  theauthority  to  accept,  and  it  would  be  only  reason- 
able prudence  torequire  the  production  of  that  authority.  The 
plaintiff  in  this  case  relies  on  the  authority  given  by  two  powers 
of  attorney,  which  are  instruments  to  be  construed  strictly.  By 
the  first  of  the  powers  in  question  the  defendant  gave  to  certain 
persons  authority  to  do  certain  acts  for  him,  and  in  his  name,  and 
to  his  use.  It  is  rather  a  power  to  take  than  to  bind ;  and,  looking 
at  the  whole  of  the  instrument,  although  general  words  are  used, 
it  only  authorizes  acts  to  be  done  for  the  defendant  singly ;  it 
contains  no  express  power  to  accept  bills,  nor  does  there  appear 
to  have  been  an  intention  to  give  it :  the  first  power,  therefore, 
did  not  warrant  this  acceptance.  The  second  power  gave  an 
express  authority  to  accept  bills  for  the  defendant  and  on  his 
behalf.  No  such  power  was  requisite  as  to  partnership  transac- 
tions, for  the  other  partners  might  bind  the  firm  by  their  accept- 


140  Signature  by  Procuration 

ance.  The  words,  therefore,  must  be  confined  to  that  which  is 
their  obvious  meaning,  viz.,  an  authority  to  accept  in  those  cases 
where  it  was  right  for  him  to  accept  in  his  inn^du^xapaciU:. 
Besides,  the  bills  to  be  accepted  are  those  drawn  by  the  defend^ 
ant's  agents  or  correspondents ;  but  the  drawer  of  the  bill  in  ques- 
tion was  not  lias  agent  quoad  hoc.  The  bills  are  to  be  accepted, 
too,  "as  occasion  shall  require."  It  would  be  dangerous  to  hold 
that  the  plaintiff  in  this  case  was  not  bound  to  enquire  into  the 
propriety  of  accepting.  He  might  easily  have  done  so  by  calling 
for  the  letter  of  advice ;  and  I  think  he  was  bound  to  do  so.  For 
these  reasons,  I  am  of  opinion  that  judgment  of  nonsuit  must  be 
entered. 

Holrovd,  J.  I  agree  in  thinking  that  the  powers  in  question 
did  not  authorize  this  acceptance.  The  word  procuration  gave  due 
notice  to  the  plaintiffs,  and  they  were  bound  to  ascertain,  before 
they  took  the  bill,  that  the  acceptance  was  agreeable  to  the  authority 
given.  The  case  does  not  state  sufficient  to  show  that  this  bill 
was  drawn  by  an  agent  in  that  capacity,  but  rather  the  contrary ; 
for  it  appears  that  it  was  drawn  to  raise  money  for  the  joint  con- 
cern in  which  the  drawer  was  a  partner ;  it  does  not,  therefore, 
come  within  the  special  power.  Then,  as  to  the  general  powers. 
These  instruments  do  not  give  general  powers,  speaking  at  large, 
but  only  where  they  are  necessary  to  carry  the  purposes  of  the 
special  powers  into  effect. 

Littledale,  J.  I  am  of  the  same  opinion.  It  issaid  that 
third  persons  are  not  bound  to  enquire  into  the  making  of  a 
bill;  but  that  is  not  so  where  the  acceptance  appears  to  be  by 
procuration.  The  question  then  turns  upon  the  authority  given. 
The  first  power  of  attorney  contains  an  authority  to  indorse,  but 
not  to  accept  bills ;  the  latter,  therefore,  seems  to  have  been  pur- 
posely omitted.  Neither  is  this  varied  by  the  general  words,  for 
they  cannot  apply  to  any  thing  as  to  which  limited  powers  are 
given.  The  second  power  gives  authority  "to  accept  for  me  and 
in  my  name,  bills  drawn  or  charged  on  me  by  my  agents  or  corre- 
spondents, as  occasion  shall  require."  The  latter  words,  as  to  the 
occasion,  do  not  appear  to  me  to  vary  the  question  ;  and,  reading 
the  sentence  without  them,  it  authorizes  the  acceptance  of  bills 
drawn  by  an  agent.  The  present  bill  was  not  drawn  by  Burleigh 
in  his  character  as  agent,  and  therefore  the  "acceptance  was  with- 
out sufficient  authority,  and  the  plaintiff  cannot  recover  upon  it. 

Postea  to  the  defendant. 


In  re  Soltykoff  141 

EFFECT  OF  INDORSEMENT  BY  INFANT.  §  24. 

In  re  Soltykoff  (i8pi),  i  Q.  B.  Div.  413. 

Appeal  against  the  dismissal  of  a  bankruptcy  petition  pre- 
sented against  Prince  Alexis  Soltykoff. 

The  petitioner  was  the  indorsee  for  some  bills  of  exchange 
which  had  been  accepted  by  the  Prince  when  he  was  an  infant. 
There  was  evidence  that  the  bills  had  been  given  in  payment  for 
goods  supplied  to  the  Prince  by  the  drawer.  It  was  assumed  for 
the  purpose  of  the  argument  that  the  goods  were  necessaries. 

The  registrar  held  that  an  infant__could  not  make  himself 
liable  for  accepting  a  bill  of  exchange,  even  though  he  accepted 
The  bill  in  order  to  pay  for  necessaries  supplied  to  him  by  the 
drawer. 

The  petitioner  appealed. 

Bigham,  Q.  C,  and  Henry  Kisch,  for  the  appellant. 
F inlay,  Q.  C,  and  Herbert  Reed,  for  the  respondent,  were 
not  called  upon. 

Lord  Esher,  M.  R.  The  claim  of  the  petitioning  creditor  is 
founded  upon  a  debt  alleged  to  be  due  to  him  as  the  indorsee  of 
some  bills  of  exchange  accepted  by  the  respondent,  who  at  the 
time  of  the  acceptance  was  an  infant.  The  petitioner  is  not  a  per- 
son who  supplied  necessaries  to  the  respondent  when  he  was  an 
infant.  He  supplied  no  necessaries  to  the  infant ;  he  is  only  the 
indorsee  of  some  bills  of  exchange  accepted  by  him.  As  regards 
an  indorsee  of  a  bill  of  exchange  it  is  immaterial  whether  there 
was  any  consideration  for  the  bills  as  between  the  drawer  and  the 
acceptor ;  he  can  sue  the  acceptor  as  the  indorsee  of  the  bills,  and 
nothing  else.  The  question,  therefore,  whether  necessaries  were 
supplied  to  the  infant  by  the  drawer  of  the  bill,  is  immaterial. 

It  has  been  held  in  a  long  series  of  cases  that  an  infant  can- 
not make  himself  liable  by  the  custom  of  merchants"  either  by  a 
bill  of  exchange  or  by  a  promissory  note.  It  is  said  that  those" 
decisions  are  not  binding  on  this  Court.  That  may  be  so.  But,  in 
my  opinion,  it  would  be  absolutely  wrong  at  the  present  day  to 
overrule  those  cases,  which  have  been  so  long  accepted  as  law. 
But  I  do  not  wish  to  rest  my  decision  solely  upon  case  law.  The 
principle  long  established  by  English  law  is  this — that  an  infant 
cannot  make  himself  liable  upon  any  contract  whatever,  except  a 
contract  for  a  supply  of  necessaries.  I  will  go  further  and  say  this, 


142  Effect  of  Indorsement  by  Infant 

that  the  principle  of  the  cases  goes  to  this  extent,  that,  if  an  infant 
accepted  a  bill  of  exchange  or  gave  a  promissory  note  for  the 
price  of  necessaries  supplied  to  him,  and  he  were  sued  upon  the 
bill  or  the  note  by  the  man  who  had  supplied  the  necessaries,  and 
the  plaintiff  relied  only  on  the  bill  or  note,  and  gave  no  evidence 
of  the  supply  of  necessaries,  the  infant  would  not  be  liable.  He 
is  not  liable  upon  a  bill  of  exchange  or  a  promisso]XJLOie_undex 
any  circumstances.  It  is  not  necessary  for  the  protection  of  per- 
sons dealing  with  an  infant  that  he  should  be  liable  on  such  a 
contract.  The  person  who  has  supplied  an  infant  with  necessaries 
can  always  sue  on  that  contract  for  the  price  of  what  he  has  sur>_ 
plied.  Whether  such  a  debt  would  support  a  bankruptcy  petition 
I  will  not  decide  at  present.  The  cases  cited  are  against  the 
appellant,  and  so  is  the  established  principle  of  English  law.  I 
think  the  Infants'  Relief  Act  is  also  against  him ;  it  seems  to  me 
to  assume  that  an  infant  is  not  liable  upon  a  bill  of  exchange  or  a 
promissory  note.  I  think  this  is  a  necessary  implication  from  that 
Act,  and  also  from  the  Bills  of  Exchange  Act.  In  my  opinion, 
the  decision  of  the  registrar  was  quite  right. 

Bo  wen,  L.  J.  I  am  entirely  of  the  same  opinion.  The  peti- 
tion is  founded_on_jh^_comra£L_cj:eated  by  the  bills :  not  on  the 
original  contract  for  the  supply  of  goods,  even  if  that  were  a 
coutract  for  the  supply  of  necessaries.  The  Infants'  Relief  Act  is 
clear  that  an  infant  cannot  be  made  liable  on  such  a  contract,  and 
the  Bills  of  Exchange  Act  assumes  the  same  thing. 

Lopes,  L.  J.  The  petitioner  is  suing  by  virtue  of  the  custom 
of  merchants  as  indorsee  of  some  bills  of  exchange.  The  question 
whether  necessaries  were  supplied  to  the  infant  does  not  arise. 
But,  even  if  the  proceedings  were  between  the  original  parties  to 
1  the  bills,  the  answer  to  the  claim  would  be,  that  an  infant  cannot 
render  himself  liable  upon  a  bill  of  exchange  or  a  promissory  note. 
This  is  no  hardship  upon  a  person  who  supplies  necessaries  to 
an  infant,  for  he  is  entitled  to  sue  the  infant  upon  the  original 
contract.  All  the  authorities  are  in  favour  of  this  view  of  the  law, 
and  both  the  Infants'  Relief  Act  and  the  Bills  of  Exchange  Act 
point  in  the  same  direction. 

Appeal  dismissed. 


Beattie  v.  National  Bank  143 

FORGED  SIGNATURES.  §  25. 

Beattie  v.  National  Bank  (1898),  17 '/  ///.  j/i,  66  Am.  St.  Rep. 

318. 

There  is  no  controversy  as  to  the  facts.  The  case  was  tried 
upon  a  stipulation  as  to  the  facts,  which  were  substantially  as 
follows:  On  September  15,  1891,  one  George  P.  Bent  of  No. 
223  Canal  Street,  Chicago,  sent  for  collection  to  the  First  National 
Bank  of  Council  Bluffs,  Iowa,  a  note  for  $133.50,  made  by  a  man 
by  the  name  of  Max  Bournicus.  On  September  28,  1891,  the 
First  National  Bank  of  Council  Bluffs  collected  the  note,  and  on 
the  same  day  made  its  draft  for  $133.25  on  the  National  Bank  of 
Chicago,  Illinois,  to  the  order  of  George  A.  Bent,  Chicago.  The 
draft  was  made  payable  to  the  order  of  George  A.  Bent,  instead  of 
George  P.  Bent,  by  mistake.  It  was  mailed  to  George  A.  Bent,  Chi- 
cago, Illinois.  George  P.  Bent  was  intended  to  be  made  the  payee  in 
the  draft ;  George  A.  Bent  never  had  any  business  transactions  with 
appellee,  the  drawee,  or  with  the  First  National  Bank  of  Council 
Bluffs,  the  drawer  of  the  draft.  The  latter  bank  was  never  indebted 
to  George  A.  Bent.  A  man,  named  George  A.  Bent,  received  the 
draft  from  the  postoffice,  and  endorsed  upon  it  his  own  name, 
George  A.  Bent,  and  sold  it  to  the  appellant.  The  facts  tend  to  show, 
that  the  appellant  purchased  the  draft  in  good  faith,  relying  upon 
one  Beach,  a  broker,  whom  he  knew,  although  he  was  not  acquain- 
ted with  George  A.  Bent,  the  supposed  payee  in  the  draft.  After 
purchasing  the  draft  the  appellant  deposited  it  for  his  own  account 
in  the  Bank  of  Commerce  in  Giicago,  which  cleared  through  the 
Union  National  Bank  of  Chicago.  The  draft  was  paid  by  the  appel- 
lee bank  through  the  Union  National  Bank.  The  appellee  returned 
the  draft  to  the  National  Bank  of  Council  Bluffs,  and  it  was  there 
discovered  that  George  A.  Bent  had  received  the  draft  intended 
for  George  P.. Bent.  Affidavits,  setting  up  the  facts  and  the  mis- 
take which  had  occurred,  were  made  and  attached  to  the  draft ;  and 
the  draft,  with  the  affidavits  so  attached,  was  returned  to  the  appel- 
lee. The  appellee  returned  the  draft  to  the  Union  National  Bank, 
which  redeemed  it  under  the  rules  of  the  clearing  house.  The  Union 
National  Bank  presented  it  to  the  Bank  of  Commerce,  and  the 
latter  bank  took  it  up,  and  required  the  appellant  to  make  the  same 
good.  The  appellant  took  the  draft  to  the  appellee  bank,  and, 
ascertaining  that  the  appellee  had  funds  in  its  hands  belonging 
to  the  First  National  Bank  of  Council  Bluffs,  the  drawer  of  the 
draft,  demanded  payment ;  but  payment  was  refused  by  appellee 


144  Forged  Signatures 

on  the  alleged  ground  that  the  endorsement  of  the  payee  was  a 
forgery. 

Six  propositions  were  submitted  by  the  appellant,  the  plain- 
tiff below,  to  the  trial  court  to  be  held  as  law  in  the  decision  of 
the  case.  Two  of  these  were  marked  held,  two  were  marked 
refused,  and  two  were  modified.  The  trial  court,  of  its  own 
motion,  made  in  writing  and  held  affirmatively  a  proposition,  hold- 
ing that  no  right  of  action  existed  against  the  appellee,  the  Na- 
tional Bank  of  Illinois,  and  declined  to  hold  whether  or  not  the 
First  National  Bank  of  Council  Bluffs  was  liable.  Proper  excep- 
tions were  taken  to  the  action  of  the  court. 

Harry  Vincent,  for  appellant. 
Arnold  Heap,  for  appellee. 

Mr.  Justice  Magruder  delivered  the  opinion  of  the  court : 

The  question,  presented  by  this  record,  is  within  a  very  nar- 
row compass.  It  is,  whether  a  party,  holding  a  draft  under  a 
forged  endorsement  of  the  payee  therein,  or  what  amounts  to  a 
forged  instrument,  can  compel  the  drawee  to  pay  him  the  draft. 

It  is  established  clearly  by  the  evidence,  that  the  George  A. 
Bent,  who  took  the  draft  from  the  postoffice  and  endorsed  his  name 
upon  the  back  of  it,  was  not  the  real  payee,  to  whom  the  drawer 
of  the  draft  intended  to  make  it  payable.  It  is  true,  that  the  real 
and  intended  payee  and  real  owner  of  the  draft  was  named  George 
P.  Bent ;  but  the  fact,  that  the  name  of  the  real  owner  and  the 
name  of  the  fraudulent  possessor  of  the  draft  differ,  so  far  as  the 
middle  letter  of  the  name  is  concerned,  does  not  make  the  case 
other  than  a  case,  where  the  name  of  the  real  payee  and  the  name 
of  the  assumed  payee  are  the  same.  This  is  so,  because  the  law 
does  not  regard  the  middle  initial  letter  as  a  part  of  a  person's 
name,  but  only  recognizes  one  Christian  name  of  a  party. 
(Thompson  v.  Lee,  21  111.  241  ;  Erskine  v.  Davis,  25  id.  251  ; 
Miller  v.  People,  39  id.  457;  Bletch  v.  Johnson,  40  id.  116;  Hum- 
phrey v.  Phillips,  57  id.  132). 

Where  a  bill  is  payable  to  the  order  of  a  person  and  another 
person  of  the  name  of  the  payee  gets  hold  of  it.  and  endorses  it 
to"  a  jparty  who  takes  it  in  good  faith  and  for  value,  such  party 
acquires  no  title  to.  the  bill. .  Cochran  v.  Atchison,  27  Kan.  728. 
If  the  endorsement  so  made  by  a  person  who  is  not  the  real 
payee,  but  has  the  same  name  as  the  real  payee,  is  made  by  such 
person  with  full  knowledge  that  he  is  not  the  real  payee,  and 
with  intent  to  perpetrate  a  fraud,  his  endorsement  cannot  be 
regarded  otherwise  than  as  a  forgery. 


Beattie  v.  National  Bank  145 

In  Barfield  v.  State,  29  Ga.  127,  it  was  held  that,  where 
there  were  two  persons  of  the  same  name,  and  one  of  them 
signed  that  name  to  certain  notes  with  the  intention  that  the 
notes  might  be  used  in  trade  as  the  notes  of  the  other,  it  was  a 
forgery. 

Blackstone  (4  Com.  247)  defines  forgery  to  be  the  fraud- 
ulent making  or  alteration  of  a  writing  to  the  prejudice  of  another 
man's  right.  "One  may  Be  guilty  of  forgery  if  he  fraudulently 
signs  his  name,  although  it  is  identical  with  that  of  the  person 
who  should  have  signed.  Thus,  if  a  bill  of  exchange  is  payable 
to  A  B,  or  order,  and  it  comes  to  the  hand  of  a  person  named 
A  B  who  is  not  the  payee,  and  who  fraudulently  endorses  it  for 
the  purpose  of  obtaining  the  money,  this  is  a  forgery."  (United 
States  v.  Long,  30  Fed.  Rep.  678.)  Where  an  endorsement  is  made 
for  the  purpose  of  being  fraudulently  used  as  the  endorsement 
of  another  person,  it  is  falsely  made.  The  falsity  of  the  act  con- 
sists in  the  intent  that  the  endorsement  shall  pass  and  be  received 
as  that  of  some  other  party,  and  in  such  case,  the  charge  of 
forgery  can  be  maintained,  although  the  signature  is  of  a  name, 
which  might  lawfully  be  used  by  the  person,  who  put  it  on  the 
draft  or  bill  of  exchange.     Commonwealth  v.  Foster,  114  Mass. 

In  People  v.  Peacock,  6  Cow.  73,  where  certain  coal  was 
consigned  to  George  Peacock  of  New  York,  and  arrived  there, 
and  was  claimed  by  another  of  the  same  name,  who  resided  in 
the  same  city,  but  was  not  the  true  consignee ;  and  he,  knowing 
this,  obtained  an  advance  of  money  on  endorsing  the  permit  for 
the  delivery  of  the  coal  with  his  own  proper  name,  it  was  held 
that  this  was  forgery. 

Nothing  is  better  settled  than  that  _a  forged  endorsement 
does  not  pass  title  to  commercial  paper  negotiable  only  by  endorse- 
ment, and  does  not  justify  the  payment  of  such  paper.  Here, 
whether  the  endorsement  of  the  payee's  name  was  technically  a 
forgery,  or  was  merely  a  spurious  and  false  endorsement,  in  either 
case  it  was  inoperative_tQ_  change  the  title  to  the  instrument. 
(Graves  v.  American  Exchange  Bank,  17  \T.  Y.  205.)  In  Graves 
v.  American  Exchange  Bank,  supra,  it  was  held  that  the  drawee 
of  a  bill  of  exchange  is  bound  to  ascertain  that  the  person  to 
whom  he  makes  payment  is  the  genuine  payee,  or  is  authorized 
by  him  to  receive  it ;  that  it  is  no  defense  against  such  a  pavee, 
that  the  drawee,  in  the  regular  course  of  business  with  nothing  to 
excite  suspicion,  paid  the  bill  to  a  holder  in  good  faith  and  for 
value  under  an  endorsement  of  a  person  bearing  the  same  name 


146  Forged  Signatures 

as  the  payee.  There  it  was  said  by  the  court :  "The  defendants, 
on  whom  the  draft  was  drawn,  paid  it  upon  the  endorsement  of 
another  Charles  F.  Graves,  residing  at  or  near  LaSalle,  who 
wrongfully  took  it  from  the  postoffice  at  Mendota.  Such  a  pay- 
ment, although  made  in  good  faith,  did  not  divest  or  impair  the 
title  of  the  true  owner,  who  had  not  seen  or  endorsed  the  paper." 

In  Mead  v.  Young,  4  Term  Rep.  28,  the  action  was  brought 
by  the  endorser  of  a  bill  of  exchange  against  the  acceptor,  the 
bill  having  been  drawn  by  one  Christian  on  the  defendant  in  Lon- 
don, payable  to  Henry  Davis  or  order ;  and,  having  been  put  into 
the  foreign  mail  enclosed  in  a  letter  from  Christian,  it  got  into 
the  hands  of  another  Henry  Davis  than  the  one  in  whose  favor 
it  was  drawn ;  the  defendant  accepted  the  bill,  and  it  was  dis- 
counted by  the  plaintiff;  it  was  held,  that  it  was  competent  for 
the  defendant  to  prove  that  the  person,  who  endorsed  to  the 
plaintiff,  wras  not  the  real  payee,  though  he  was  of  the  same  name, 
and  though  there  was  no  addition  to  the  name  of  the  payee  on 
the  bill ;  and  it  was  also  held  that,  if  a  bill  of  exchange  payable  to 
A  or  order  got  into  the  hands  of  another  person  of  the  same 
name  with  the  payee,  and  such  person,  knowing  that  he  was  not 
the  real  person  in  whose  favor  it  was  drawn,  endorsed  it,  he  was 
guilty  of  a  forgery.  In  that  case,  Ashhurst,  J.,  said:  "In  order 
to  derive  a  legal  title  to  a  bill  of  exchange  it  is  necessary  to 
prove  the  handwriting  of  the  payee,  and,  therefore,  though  the 
bill  may  come  by  mistake  into  the  hands  of  another  person  though 
of  the  same  name  with  the  payee,  yet  his  endorsement  will  not 
confer  a  title."  In  the  same  case,  Bullard,  J.,  said :  "I  am  of 
opinion  that  it  is  incumbent  on  the  plaintiff,  who  sues  on  a  bill 
of  exchange,  to  prove  the  endorsement  of  a  person  to  whom  it  is 
really  payable.  *  *  *  Now  here  it  is  clear,  that  the  endorse- 
ment was  not  made  by  the  same  H.  Davis  to  whom  the  bill  was 
made  payable ;  and  no  endorsement  by  any  other  person  will  give 
any  title  whatever." 

In  the  case  at  bar,  when  the  appellant  presented  the  draft 
for  payment  to  the  appellee,  the  latter  had  a  right  to  know  that 
the  appellant  held  the  draft  under  a  genuine  endorsement.  When 
the  appellant  presented  the  draft  for  payment,  it  had  been  ascer- 
tained_that  the  endorsement  was  forged,  or  at  all  events  spurious 
and  false,  and  was  therefore  void.  No  title  passed  by  it,  and  if 
the  appellee  had  made  payment  to  the  appellant,  appellee  could 
have  been  compelled  again  to  pay  the  draft  to  the  true  owner 
thereof.  Daniel,  in  his  work  on  Negotiable  Instruments,  says : 
"The  maker  of  a  note  or  the  acceptor  of  a  bill  must  satisfy  him- 


Beattie  v.  National  Bank  147 

self,  vyhen  it  is  presented  for  payment,  that  the  owner  traces  his 

title  through  genuine  endorsements;  for  if  there  is  a  forged" 
endorsement,  it  is  a  nullity,  and  no  right  passes  by  it.  And  pay-1" 
ment  toa  holder  under  a  forged  endorsement  would  be  invalid 
as  against  the  true  owner,  who  mightTTreqnire  it  to  he  paid" 
again.  *  *  *  The  payor  should  also  satisfy  himself  of  the 
identity  of  the  holder ;  for  he  cannot  defend  himself  against  the 
real  payee  by  showing,  that  he  paid  the  amount  of  the  bill  or  note 
to  another  person  of  the  same  name  in  good  faith  and  in  the  usual 
course  of  business."  (2  Daniel  on  Neg.  Inst.,  4th  ed.,  sec.  1225.) 
So,  also,  Randolph,  in  his  work  on  Commercial  Paper,  says : 
"Where  a  bank  holds  a  note  or  bill  for  collection  under  a  forged 
endorsement  and  collects  and  pays  it  over  to  its  principal,  it  will 
still  be  liable  to  the  real  owner  for  the  amount  collected.  *  * 
So,  if  a  bill  is  endorsed  by  another  person  in  the  payee's  name 
and  paid  to  the  holder  under  such  endorsement,  the  payee  may 
recover  such  payment."    (3  Randolph  on  Com.  Paper,  sec.  1469). 

It  follows  from  the  authorities  thus  referred  to,  that  the 
appellant,  having  no  title  to  the  draft^was  not  entitled  to  recover 
the  amount  thereof  from  the  appellee. 

If,  without  knowledge  of  the  real  character  of  the  endorse- 
ment of  the  draft  by  the  supposed  payee  named  therein,  the 
appellee  had  paid  the  amount  of  the  draft  to  the  appellant,  it 
could  have  recovered  such  amount  back  from  the  appellant. 
This  results  from  the  fact  that  "the  endorser  contracts  that  the 
bilLor_note  is  iq. every  respect  genuine,  and  neither  forged.  fictJT 
tious  nor"  altered.  "■  (1  Daniel  on  IN  eg.  Inst,  4th  ed.,  sec.  672.) 
Tiedeman,  in  his  work  on  Commercial  Paper,  says:  "Inasmuch 
as  the  endorser  also  warrants  that  he  has  a  perfect  title  to  the 
paper  by  endorsement,  and  is  liable  if  his  title  proves  defective, 
and  since  no  title  passes  on  a  forged  endorsement,  it  follows  as 
a  necessary  consequence  that  the  endorser  must  warrant  the  gen- 
uineness of  the  prior  endorsements."  (Sec.  259.)  Randolph,  in 
his  work  on  Commercial  Paper,  says:  "Since  the  endorser  war- 
rants the  genuineness  of  prior  endorsements,  payment,  made  by 
the  drawee  to  an  endorser  holding  under  a  forged  endorsement, 
may  be  recovered  from  such  holder."  (Sec.  1469.)  It  was 
held  in  Chambers  v.  Union  Nat.  Bank,  78  Pa.  St.  205,  that  the 
holder  of  a  draft,  which  is  endorsed  and  passed  by  him.  guaran- 
tees the  prior  endorsements.  In  Cochran  v.  Atchison,  supra, 
where  a  bill  was  payable  to  W.  W.  Owens  and  one  W.  W.  Owen 
obtained  possession  of  it  and  wrongfully  endorsed  it.  it  was  held 
that  a  subsequent  endorser  could  not  relieve  himself  from  liability 


^x^ 


148  Forged  Signatures 

to  his  immediate  endorsee  on  the  ground  that  the  latter  was 
guilty  of  negligence  in  taking  the  paper  without  the  name  of  the 
actual  payee  endorsed  thereon,  upon  the  grounds  that  the  endorser 
guarantees  the  genuineness  of  the  signature  of  the  payee,  and 
that  the  difference  in  pronunciation  between  Owens  and  Owen 
was  so  slight  as  not  to  amount  to  a  variance.  The  court  held 
generally  in  that  case,  that  an  endorser  warrants  the  genuineness 
of  endorsements  on  a  bill  of  exchange.  If,  therefore,  it  be  true 
that,  upon  payment  of  the  amount  of  the  draft  to  appellant  by 
appellee,  a  recovery  could  be  had  by  appellee  from  the  appellant 
of  the  amount  so  paid,  upon  the  ground  that  appellant  by  his 
endorsement  had  guaranteed  the  genuineness  of  the  previous 
endorsement  by  George  A.  Bent,  it  would  be  useless  to  hold  that 
a  right  of  recovery  exists  in  favor  of  the  appellant  against  the 
appellee.  To  require  the  appellee  to  pay  an  amount,  which  it 
could  hereafter  recover  back  again,  would  be  an  idle  ceremony. 

Counsel  for  appellant  claims,  that  he  has  a  right  of  action 
for  negligence  against  the  First  National  Bank  of  Council  Bluffs, 
Iowa,  because  of  the  alleged  carelessness  of  that  bank,  which  was 
the  drawer  of  the  draft,  in  not  mailing  it  properly  to  the  payee 
named  therein.  In  other  words,  it  is  said  that,  instead  of  address- 
ing the  letter  enclosing  the  draft  to  George  A.  Bent  of  Chicago, 
it  should  have  addressed  it  to  George  P.  Bent  of  223  South  Canal 
Street,  Chicago.  We  do  not  deem  it  necessary  to  decide,  whether 
or  not  an  action  will  lie  in  favor  of  the  appellant  against  the  Iowa 
bank.  This  action  is  against  the  appellee  bank,  and  it  is  sufficient 
to  say  that,  so  far  as  this  record  shows,  the  appellee  was  guilty 
of  no  negligence. 

The  judgment  of  the  Appellate  Court,  affirming  the  judg- 
ment of  the  Circuit  Court,  is  affirmed. 

Judgment  affirmed. 

V  **v 

Robertson  v.  Coleman  et  al  (1886),  141  Mass.  231. 

Contract  to  recover  the  amount  of  a  bank  check  for  $91.08, 
signed  by  the  defendants,  dated  March  31,  1883,  and  payable  to 
the  order  of  Charles  Barney.  Trial  in  the  Superior  Court,  before 
Knowlton,  J.,  who  reported  the  case  for  the  determination  of  this 
court,  in  substance  as  follows: 

On  March  27,  1883,  a  young  man  went  to  the  Metropolitan 
hotel  in  Boston,  of  which  the  plaintiff  was  the  proprietor,  and 
registered  his  name  as  Charles  Barney.    On  that  or  the  next  day 


Robertson  v.  Coleman  et  al.  149 

he  took  to  the  place  of  business  of  the  defendants,  who  sold  prop- 
erty as  auctioneers,  a  team,  of  which  he  represented  himself  to  be 
the  owner,  and  which  he  desired  them  to  sell  on  his  account.  He 
gave  his  name  there  as  Charles  Barney.  In  reply  to  an  inquiry 
regarding  him,  they  received  a  message  by  telegraph  that  Charles 
Barney,  of  Swanzey,  was  a  responsible  and  trustworthy  man. 
Believing  him  to  be  Charles  Barney,  of  Swanzev,  they  sold  the 
horse  and  carriage  for  him,  and  three  days  afterwards  gave  him, 
in  payment  of  the  money  received,  the  check  declared  on.  On 
March  31,  he  left  the  plaintiff's  hotel,  where  he  had  been  staying 
in  the  mean  time  under  the  name  of  Charles  Barney,  and,  before 
going,  he  gave  the  check  to  the  plaintiff  in  payment  of  his  board 
bill  of  $16.75,  and  received  the  balance  of  its  amount  in  cash  from 
the  plaintiff  At  the  same  time  he  indorsed  it  in  blank  with  the  name 
of  Charles  Barney.  It  turned  out  that  Charles  Barney  was  not 
his  true  name,  and  there  was  no  evidence  that  he  had  ever  gone 
by  that  name  before  registering  at  the  plaintiff's  hotel.  The 
defendants  discovered  that  he  had  stolen  the  team  which  he  left 
with  them,  and,  by  their  order,  the  bank  upon  which  the  check 
was  drawn  refused  to  pay  it.  It  was  in  evidence  that  there  was 
a  person  in  existence  by  the  name  of  Charles  Barney,  of  Swanzey. 
It  appeared  that  the  plaintiff  made  no  further  inquiry  as  to  the 
identity  of  the  payee  than  for  information  which  was  founded 
upon  the  representations  of  his  said  lodger. 

Upon  these  facts,  the  judge  instructed  the  jury  as  follows : 
"If  the  person  who  took  the  team  to  the  defendants'  place  of  bus- 
iness left  it  there  under  the  name  of  Charles  Barney,  and  the 
defendants,  in  receiving  it,  dealt  with  him  as  Charles  Barney,  and 
sold  the  team  for  him,  and  three  days  afterwards  gave  him  the 
check  in  the  belief  that  he  was  Charles  Barney,  of  Swanzey,  and 
was  the  owner  of  the  team,  and  said  person  had  in  the  mean  time 
been  boarding  at  the  plaintiff's  hotel  under  that  name,  and  had 
gone  by  that  name  while  at  said  hotel,  the  plaintiff,  upon  the 
receipt  from  him  of  said  check  in  good  faith,  for  a  valuable  con- 
sideration, with  his  indorsement  upon  it,  acquired  a  good  title  to 
it  as  against  the  defendants." 

The  jury  returned  a  verdict  for  the  plaintiff.  If  the  instruc- 
tion was  correct,  judgment  was  to  be  entered  upon  the  verdict ; 
otherwise,  such  order  to  be  made  as  law  and  justice  might  require. 

6".  /.  Thomas  &  C.  P.  Sampson,  for  the  defendants. 
C.  F.  Kittredgc,  for  the  plaintiff. 


1^0  Bills  in  a  Set 

Field,  J.  The  name  of  a  person  is  the  verbal  designation  by 
which  he  is  known,  but  the  visible  presence  of  a  person  affords 
surer  means  of  identifying  him  than  his  name.  The  defendants, 
for  a  valuable  consideration,  gave  the  check  to  a  person  who  said 
his  name  was  Charles  Barney,  and  whose  name  they  believed  to 
be  Charles  Barney,  and  they  made  it  payable  to  the  order  of 
Charles  Barney,  intending  thereby  the  person  to  whom  they  gave 
the  check.  The  plaintiff  received  this  check  for  a  valuable  con- 
sideration, in  good  faith,  from  the  same  person,  whom  he  believed 
to  be  Charles  Barney,  and  who  indorsed  the  check  by  that  name. 
It  appears  that  the  defendants  thought  the  person  to  whom  they 
gave  the  check  was  Charles  Barney,  of  Swanzey,  a  person  in 
existence,  but  it  does  not  appear  that  they  thought  so  from  any 
representations  made  by  the  person  to  whom  they  gave  the  check, 
although  this,  perhaps,  is  immaterial.  It  is  clear  from  these  facts, 
that,  although  the  defendants  may  haye_b^nnustakejij.n_U2e_soil 
of  man  the  person  they  dealLwith_wast Jhis  person  was  the  person 
intended  by  them  as _the_payee  of  the  check,  designated  by  the 
najr^hf-jwias  raljpri  in  thp  transaction,  and  that  his  indorsement  of 
it  was  the  indorsement  of  the  payee  of  the  check  bv  that  name. 
The  contract  of  the  defendants  was  to  pay  the  amount  of  the 
check  to  this  person  or  his  order,  and  he  has  ordered  it  paid  to 
the  plaintiff.  If  this_person  obtained  the  check±roriLihe_jkfend: 
ants  by  fraudujeji^e^resentation^  JLh^jila.intiJL-tQpk  it  in  g°°d 
faith  and  for  value.  (See  Samuel  v.  Cheney,  135  Mass.  278; 
Edmunds  v.  Merchants'  Transportation  Co.,  135  Mass.  283.) 

Judgment  on  the  verdict. 


BILLS  IN   A  SET.  §§  l8o 185. 

Walsh  v.  Blatchlcy  (1853),  6  wis-  4J3- 

Appeal  from  Marquette  Circuit  Court. 

The  plaintiff  declared  in  trespass  on  the  case  upon  promises, 
for  money  lent;  money  laid  out  and  expended;  money  paid  and 
received  by  the  defendants  for  the  use  of  the  plaintiff,  &c. ;  also 
gave  notice  of  the  cause  of  action,  the  indorsement  by  defendants 
upon  the  bill  of  exchange,  copied,  and  served  with  the  declaration, 
as  follows: 


Walsh  v.  Blatchley  151 

"Express  Exchange  Office, 

"Adams  &  Co.  "Downieville,  San  Francisco. 

"Exchange  for  $250.  Oct.  6,  1854. 

"No.  9,917." 

"At  sight  of  this  2d  of  exchange — first  and  third  unpaid — 
"  pay  to  the  order  of  Phcebe  Blatchley,  two  hundred  and  fifty 
"  dollars  value  received,  and  place  to  account  of  exchange. 

"Adams  &  Co. 

"To  Messrs.  Adams  &  Co.,  New  York, 
(Countersigned,) 
"S.  W.  Langworthy,  C.  B.  Macy,  Agents." 

Indorsed  by  Phcebe  Blatchley  to  Henry  Dart  or  order,  and 
by  J.  Henry  Dart  to  P.  O.  Strang  or  order,  and  by  Strang  to  P. 
Walsh  or  order. 

The  defendants  plead  the  general  issue ;  and  by  mutual  agree- 
ment of  counsel,  the  cause  was  tried  before  the  circuit  judge, 
without  the  intervention  of  a  jury,  who  found,  and  reported  in 
writing  with  his  decision,  the  facts  and  conclusions,  and  recited 
in  full  in  the  opinion  of  the  court  therein. 

Orton,  Hopkins  and  Firman,  for  appellant. 
Smith  and  Keyes,  for  respondent. 

By  the  Court,  Cole,  J.  This  case  was  tried  by  the  court 
without  the  intervention  of  a  jury,  and  the  judge  found  the 
following  facts : 

First.  That  the  action  is  brought  upon  the  bill  of  exchange 
introduced  in  evidence,  and  described  in  the  plaintiff's  declara- 
tion. That  this  bill,  which  is  the  second  of  the  set,  was  indorsed 
by  the  defendants  on  a  Sunday. 

Second.  That  the  first  of  the  set  was  sold  by  defendants  to 
plaintiff  about  the  1st  of  January,  1855.  That  the  plaintiff  with- 
out delay,  sent  the  same  by  mail  to  his  correspondent  in  New 
York  city,  the  residence  of  the  drawee,  for  presentation  and  pay- 
ment. That  by  some  delay  in  the  mail  the  letter  did  not  reach 
New  York  until  the  9th  of  April  following,  at  which  time,  the 
letter  with  inclosure,  was  duly  received  by  the  said  correspondent. 
That  the  bill  was  not  presented  for  payment. 

Third.    That  in  the  last  of  March,  the  plaintiff,  fearing  the 


152  Bills  in  a  Set 

said  first  bill  was  lost,  procured  the  defendants  to  indorse  and 
deliver  to  him  the  second  of  the  set,  and  had  it  presented  on  the 
third  day  of  April  following  for  payment,  to  the  drawee,  and 
payment  was  refused.  The  bill  was  duly  protested,  and  proper 
notice  given  to  the  defendants  who  were  indorsers. 

The  conclusions  of  law  which  the  court  drew  from  these 
facts,  were,  "ist.  That  the  liability  in  this  action,  if  any  at  all, 
is  upon  the  second  bill  of  the  set,  and  not  on  the  first ;  2d.  That 
because  the  said  bill  was  indorsed  on  Sunday,  that  therefore  such 
indorsement  was  absolutely  void." 

We  have  examined  with  considerable  care  the  authorities, 
and  have  not  been  able  to  find  a  case  precisely  like  the  present, 
although  it  would  seem  as  if  the  point  must  have  frequently  arisen 
in  the  courts  in  this  country,  and  in  England.  The  case  of 
Perreira  v.  Jcpp  et  al.,  cited  in  a  note  on  page  449,  11  B.  and  C, 
would  seem  to  have  a  strong  bearing  upon  the  case  at  bar.  It 
was  there  held  that  he  to  whom  any  part  of  the  set  is  first  trans- 
ferred, acquires  a  property  in  all  the  other  parts,  and  may  main- 
tain trover  even  against  a  bona  tide  holder,  who  subsequently, 
by  transfer,  or  otherwise,  gets  possession  of  another  part  of  the 
set.  That  is,  deciding  that  the  first  indorsement  of  one  of  the 
set  vests  in  the  indorsee  Jlie_a^s^^t£_right_to  the  possession  of 
the  whole  set.  And  we  suppose  it  would  follow,  from  thisdoc- 
trine,  that  the  indorsement  of  the  second  in  this  case  was  entirely 
unnecessary.  The  liability  of  the  indorser  arose  from  indorsing 
the  first  of  the  set  for  value.  We  think  her  liability  was  not 
increased  one  jot  or  tittle  by  indorsing  the  second_pf  ,_the _jset^ 
Suppose  she  had  indorsed  all  of  them  in  January,  at  the  time  she 
indorsed  the  first,  is  it  not  obvious  that  her  liability  would  not 
have  been  different  from  what  it  is?  It  is  conceded  that  the 
indorsement  of  the  first  was  good,  and  this  indorsement  was 
entirely  adequate  to  carry  with  it  the  second  and  third.  (See 
Edwards  on  Bills,  304  and  162  ;  Holdiuorth  v.  Hunter,  10  B.  &  C. 
449;  Kentworthy  v.  Hopkins,  1  Johns.  Cas.  107.)  Either  of  the 
set  may  be  presented  for  acceptance,  and,  if  not  accepted,  a  right 
of  action  arises  upon  due  notice,  against  the  indorser.  Downes 
and  Co.  v.  Church,  13  Peters,  205.  The  bill  upon  which  the  pro- 
test was  made  was  declared  on  and  produced,  and  it  also  appeared 
that  the  first  had  not  been  presented  for  payment.  The  court 
says,  and  we  think  properly  and  correctly,  that  if  the  first  had 
been  presented  for  payment  and  protested,  even  as  late  as  April 
9th,  that  upon  proper  notice  the  indorser  would  have  been  held, 
for  the  delay  in  the  mail  would  have  been  a  sufficient  excuse  for 


Burson  v.  Huntington  153 

the  apparent  neglect  in  not  presenting  it  for  acceptance  before. 
The  case  might  have  been  relieved  from  all  doubt  and  difficulty, 
had  the  indorsee  declared  upon  the  first  of  the  set,  and  produced  \ 
on  the  trial  the  second,  which  had  been  presented  for  acceptance  jL 
and  dishonored.     Wells  v.   Whitehead,   15  Wend.  527.     This  he  \\ 
did  not  see  fit  to  do,  but  we  think  he  was  entitled  to  recover  even  J 
as  the  facts  appeared  before  the  court. 

The  judgment  is  reversed,  and  a  new  trial  ordered.  . 


Section  III — Delivery. 

DELIVERY  ESSENTIAL  TO  COMPLETION  OF  CONTRACT.  §  1 8. 

Burson  v.  Huntington   {1870),  21  Mich.  415,  4  Am.  Rep.  497. 

Action  on  the  following  instrument: 

"Schoolcraft,  Mich.,  Apr.  12th,  1866. 
"Ninety  days  from  date,  for  value  received,  I  promise  to  pay 
A.  N.  Goldwood,  or  order,  one  hundred  and  twelve  dollars,  and 
fifty  cents,  with  interest.  John  W.  Burson/' 

Indorsed  on  the  back, — "A.  N.  Goldwood." 

It  appeared  on  the  trial  that  Goldwood  had  come  to  the 
house  of  Burson  to  finish  some  negotiations  in  respect  to  which 
the  note  in  suit  was  to  be  given ;  that  the  note  was  there  written 
by  Goldwood  and  signed  by  Burson  ;  that  the  arrangement  was 
that  some  other  person  should  sign  the  note  as  surety  with  Bur- 
son ;  that  Burson  left  the  room  with  the  avowed  purpose  of  get- 
ting his  uncle  as  surety,  telling  Goldwood  as  he  went  out  not  to 
touch  the  note  'till  he  came  back  because  the  negotiations  were  not 
finally  settled ;  that  while  Burson  was  out  Goldwood  took  the 
note  and  went  away  with  it  in  spite  of  the  remonstrance  of  Bur- 
son's  sister,  who  was  present  when  Burson  said  to  Goldwood  not 
to  take  the  note ;  that  Goldwood  subsequently  indorsed  the  note 
to  Huntington,  who  sues  as  a  holder  in  due  course ;  that  the  note 
was  not  stamped  when  Goldwood  took  it.    Judgment  for  plaintiff. 

The  further  facts  sufficiently  appear  from  the  opinion. 

Christiancy,  J.  (after  passing  upon  questions  of  evidence 
and  practice)   As  a  general  rule,  a  negotiable  promissory  note, 


154       Delivery  Essential  to  Completion  of  Contract 

like  any  other  written  contract,  has  no  legal  inception  or  valid 
existence,  as  such,  until  it  has  been  delivered  in  accordance  with 
the  purpose  and  intent  of  the  parties.  See  Edwards  on  B.  &  N., 
775,  and  authorities  cited,  and  I  Pars,  on  B.  and  N.,  48  and  49, 
and  cases  cited,  and  see  Thomas  v.  Wat  kins,  16  Wis.  549;  Mahon 
v.  Sawyer,  18  Ind.  73 ;  Carter  v.  McClintock,  29  Mo.  464. 

Delivery  is  an  essential  part  of__the  making  or  execution  of 
the  note,  and  it  takes  effect  only  from  delivery  (for  most  pur- 
poses) ;  and  if  this  be  subsequent  to  the  date,  it  takes  effect  from 
the  delivery  and  not  from  the  date.  1  Pars.,  ubi  supra.  This  is 
certainly  true  as  between  the  original  parties. 

But  negotiable  paper  differs  from  ordinary  written  contracts 
in  this  respect :  that  even  a  wrongful  holder,  between  whom  and 
the  maker  or  indorser  the_note_or  indorsement  would  not  be  valid, 
may  yet  transfer  to  an  innocent  party,  who  takes  it  in  good  faith, 
without  notice  and  for_value,  a  good  title  as  against  the  makef 
or  indorser.  And  the  question  in  the  present  case  is,  how  far 
this  principle  will  dispense  with  delivery  bv  the  maker. 

When  a  note  payable  to  bearer,  which  has  once  become  oper- 
ative by  delivery,  has  been  lost  or  stolen  from  the  owner,  and  has 
subsequently  come  to  the  hands  of  a  bona  tide  holder  for  value, 
the  latter  may  recover  against  the  maker,  and  all  indorsers  on 
the  paper  when  in  the  hands  of  the  loser ;  and  the  loser  must  sus- 
tain the  loss.  In  such  a  case  there  was  a  complete  legal  instru- 
ment ;  the  maker  is  clearly  liable  to  pay  it  to  some  one ;  and  the 
question  is  only  to  whom. 

But  in  the  case  before  us,  where  the  note  had  never  been 
delivered,  and  therefore  had  no  legal  inception  or  existence  as  a 
note,  the  question  is  whether  he  is  liable  to  pay  at  all,  even  to  an 
innocent  holder  for  value. 

The  wrongful  act  of  a  thief  or  a  trespasser  may  deprive  the 
holder  of  his  property  in  a  note  which  has  once  become  a  note, 
or  property,  by  delivery,  and  may  transfer  the  title  to  an  innocent 
purchaser  for  value.  But  a  note  in  the  hands  of  the  maker  before 
delivery  is  not  property,  nor  the  subject  of  ownership,  as  such  : 
it  is,  in  law,  but  a  blank  piece  of  paper.  Can  the  theft  or  wrong- 
ful seizure  of  this  paper  create  a  valid  contract  on  the  part  of  the 
maker  against  his  will,  where  none  existed  before?  There  is  no 
principle  of  the  law  of  contracts  upon  which  this  can  be  done, 
unless  the  facts  of  the  case  are  such  that,  in  justice  and  fairness, 
as  between  the  maker  and  the  innocent  holder,  the  maker  ought 
to  be  estopped  to  deny  the  making  and  delivery  of  the  note. 

But  it  is  urged  that  this  case  falls  within  the  general  prin- 


Burson  v.  Huntington  155 

ciplc  which  has  become  a  maxim  of  law,  that  when  one  of  two 
innocent  persons  must  suffer  by  the  acts  of  a  third,  he  who  has 
enabled  such  third  person  to  occasion  the  loss  must  sustain  it. 
This  is  a  principle  of  manifest  justice  when  confined  within  its 
proper  limits.  But  the  principle,  as  a  rule,  has  many  exceptions; 
and  the  point  of  difficulty  in  its  application  consists  in  determining 
what  acts  or  conduct  of  the  party  sought  to  be  charged,  can  prop- 
erly be  said  to  have  "enabled  the  third  person  to  occasion  the 
loss,"  within  the  meaning  of  the  rule.  If  I  leave  my  horse  in  the 
stable,  or  in  the  pasture,  I  cannot  properly  be  said  to  have  enabled 
the  thief  to  steal  him,  within  the  meaning  of  this  rule,  because 
he  found  it  possible  to  steal  him  from  that  particular  locality. 
And  upon  examination  it  will  be  found  that  this  rule  or  maxim 
is  mainly  confined  to  cases  where  the  party  who  is  made  to  suffer 
the  loss,  has  reposed  a  confidence  in  the  third  person  whose  acts 
have  occasioned  the  loss,  or  in  some  other  intermediate  person 
whose  acts  or  negligence  have  enabled  such  third  person  to  occa- 
sion the  loss ;  and  that  the  party  has  been  held  responsible  for  the 
acts  of  those  in  whom  he  had  trusted  upon  ground  analogous 
to  those  which  govern  the  relation  of  principal  and  agent ;  that 
the  party  thus  reposing  confidence  in  another  with  respect  to 
transactions,  by  which  the  rights  of  others  may  be  affected,  has, 
as  to  the  persons  to  be  thus  affected,  constituted  the  third  person 
his  agent  in  some  sense,  and  having  held  him  out  as  such,  or 
trusted  him  with  papers  or  indicia  of  ownership  which  have 
enabled  him  to  appear  to  others  as  principal,  as  owner,  or  as  pos- 
sessed of  certain  powers,  the  person  reposing  this  confidence  is, 
as  to  those  who  have  been  deceived  into  parting  with  property 
or  incurring  obligations  on  the  faith  of  such  appearances,  to  be 
held  to  the  same  extent  as  if  the  fact  had  accorded  with  such 
appearances. 

Hence,  to  confine  ourselves  to  the  question  of  delivery,  the] 
authorities  in  reference  to  lost  or  stolen  notes  which  have  become 
operative  by  delivery,  have  no  bearing  upon  the  question.  If  the 
maker  or  indorser,  before  delivery  to  the  payee,  leave  the  note 
in  the  hands  of  a  third  person  as  an  escrow,  to  be  delivered  upon 
certain  conditions  only,  or  voluntarily  deliver  it  to  the  payee,  or 
(if  payable  to  bearer)  to  any  other  person  for  a  special  purpose 
only,  as  to  be  taken  to,  or  discounted  by  a  particular  bank,  or  to 
be  carried  to  any  particular  place  or  person,  or  to  be  used  only 
in  a  certain  way,  or  upon  certain  conditions  not  apparent  upon 
the  face  of  the  paper,  and  the  person  to  whom  it  is  thus  entrusted 
violate  the  confidence  reposed  in  him,  and  put  the  note  into  cir- 


156       Delivery  Essential  to  Completion  of  Contract 

culation ;  this,  though  not  a  valid  delivery  as  to  the  original 
parties,  must,  as  between  a  bona  fide  holder  for  value,  and  the 
maker  or  indorser,  be  treated  as  a  delivery,  rendering  the  note 
or  indorsement  valid  in  the  hands  of  such  bona  fide  holder ;  or  if 
the  note  be  sent  by  mail,  and  get  into  the  wrong  hands ;  as  the 
party  intended  to  deliver  to  some  one,  and  selects  his  own  mode 
of  delivery,  he  must  be  responsible  for  the  result.  These  prin- 
ciples are  too  well  settled  to  call  for  the  citation  of  authorities, 
and  manifestly  it  will  make  no  difference  in  this  respect,  if  the 
note  or  indorsement  were  signed  in  blank,  if  the  maker  or  indorser 
part  with  the  possession,  or  authorize  a  clerk  or  agent  to  do  so, 
and  it  is  done.  /  Parsons  on  Bills  and  Notes,  109  to  114,  and 
cases  cited,  especially  Putnam  v.  Sullivan,  4  Mass.  45,  which  was 
decided  expressly  upon  the  ground  of  the  confidence  reposed  in 
the  third  person,  as  to  the  filling  up,  and  in  the  clerks  as  to  the 
delivery. 

And  when  the  maker  or  indorser  has  himself  been  deceived 
by  the  fraudulent  acts  or  representations  of  the  payee  or  others, 
and  thereby  induced  to  deliver  or  part  with  the  note  or  indorse- 
ment, and  the  same  is  thus  fraudulently  obtained  from  him,  he 
must,  doubtless,  as  between  him  and  an  innocent  holder  for  value, 
bear  the  consequences  of  his  own  credulity  and  want  of  caution. 
He  has  placed  a  confidence  in  another,  and  by  putting  the  papers 
into  his  hands,  has  enabled  him  to  appear  as  the  owner,  and  to 
deceive  others.  Cases  of  this  kind  are  numerous,  but  they  have 
no  bearing  upon  the  wrongful  taking  from  the  maker,  when  he 
never  voluntarily  parted  with  the  instrument.  Much  confusion, 
however,  has  arisen  from  the  general  language  used  in  the  books 
and  sometimes  by  judges,  in  reference  to  cases  where  the  maker 
has  voluntarily  parted  with  the  possession,  though  induced  to  do 
so  by  fraud ;  when  it  is  laid  down  as  a  general  rule,  that  it  is  no 
defense  for  a  maker,  as  against  a  bona  fide  holder,  to  show  that 
the  note  was  wrongfully  or  fraudulently  obtained,  without 
attempting  to  distinguish  between  cases  where  the  maker  has 
actually  and  voluntarily  parted  with  the  possession  of  the  note, 
and  those  where  he  has  not. 

We  do  not  assert  that  the  general  rule  we  are  discussing — 
that  "where  one  of  two  innocent  parties  must  suffer,"  etc. — must 
be  confined  exclusively  to  cases  where  a  confidence  has  been  placed 
in  some  other  person  (in  reference  to  delivery)  and  abused. 
There  may  be  cases  where  the  culpable  negligence  or  recklessness 
of  the  maker  in  allowing  an  undelivered  note  to  get  into  circula- 
tion, might  justly  estop  him  from  setting  up  non-delivery;  as  if 


Burson  v.  Huntington  157 

he  were  knowingly  to  throw  it  into  the  street,  or  otherwise  leave 
it  accessible  to  the  public,  with  no  person  present  to  guard  against 
its  abduction  under  circumstances  when  he  might  reasonably 
apprehend  that  it  would  be  likely  to  be  taken. 

I 'pun  this  principle  the  case  of  Ingham  v.  Primrose  {J  C.  B. 
(N.  S.)i  82)  was  decided,  where  the  acceptor  tore  the  bill  into 
halves  (with  the  intention  of  canceling  it)  and  threw  it  into  the 
street,  and  the  drawer  picked  them  up  in  his  presence,  and  after- 
wards pasted  the  two  pieces  together  and  put  them  into  circula- 
tion. See  also  bv  analogy  Foster  v.  Mackinnon,  Law  Rep.,  4 
Com.  B.,  704. 

But  the  case  before  us  is  one  of  a  very  different  character. 
No  actual  delivery  by  the  maker  to  any  one  for  any  purpose. 

The  evidence  tends  to  show  that  when  he  left  the  room  in 
his  own  house,  the  note^being  on  the  table,  and  Tils  sister  remain- 
ing  there,  he  did  not  confide  it  to  the  custody  of  the  payee,  but 
told  him  not  to  take  it,  and  no  final  agreement  between  them  had 
yet  been  made,  and  no  consideration  given.  Under  such  circum- 
stances he  can  no  more  be  said  to  have  trusted  it  to  the  payee's 
custody  or  confidence,  than  that  he  trusted  his  spoons  or  other 
household  goods  to  his  custody  or  confidence ;  and  there  was  no 
more  apparent  reason  to  suppose  he  would  take  and  carry  off 
the  one,  than  the  other. 

The  maker,  therefore,  cannot  be  held  responsible  for  any 
negligence ;  there  was  nothing  to  prove  negligence,  unless  he  was" 
bound  tcTsuspect,  and  treat  as  a  knave,  a  thief  or  a  criminal,  the 
man  who  came  to  his  house  apparently  on  business,  because  he 
afterwards  proved  himself  to  be  such.  This,  we  think,  would  be 
preposterous. 

We,  therefore,  see  no  ground  upon  which  the  defendant  could 
be  held  liable  on  a  note  thus  obtained,  even  to  a  bona  fide  holder 
for  value.  He  was  guilty  of  no  more  negligence  than  the  plaintiff 
who  took  the  paper,  and  the  plaintiff  shows  no  right  or  equities 
superior  to  those  of  the  defendant. 

Such,  we  think,  must  be  the  result  upon  principle.  We  have 
carefully  examined  the  cases,  English  and  American,  and  are  sat- 
isfied there  is  no  adjudged  case  in  the  English  courts,  so  far  as 
their  reports  have  reached  us,  which  would  warrant  a  recovery 
in  the  present  case.  Some  dicta  may  be  found,  the  general  lan- 
guage of  which  might  sustain  the  liability  of  the  maker ;  such  as 
"hat  of  Alderson,  Baron,  in  Marston  v.  Allen  (8  M.  &  W.,  494), 
cited  by  Duer,  J.,  in  Gould  v.  Segee,  5  Duer,  260,  and  that  used 
by  Williams,  J.,  in  Ingham  v.  Primrose,  7  C.  B.  (N.  S.),  82.    But 


158       Delivery  Essential  to  Completion  of  Contract 

a  reference  to  the  cases  will  show  that  no  such  question   was 
involved,  and  that  these  remarks  were  wholly  outside  of  the  case. 

On  the  other  hand,  Hall  v.  Wilson,  16  Barb.,  548,  555,  and 
556,  contains  a  dictum  fully  sustaining  the  views  we  have  taken. 

There  are,  however,  two  recent  American  cases,  where  the 
note  or  indorsement  was  obtained  without  delivery,  under  cir- 
cumstances quite  as  wrongful  as  those  in  the  present  case,  in  one 
of  which  the  maker,  and  in  the  other  the  indorser,  was  held  liable 
to  a  bona  fide  holder  for  value :  Shipley  v.  Carroll  et  al.,  45  111., 
285  (case  of  maker)  and  Gould  v.  Segee,  5  Duer.,  266.  But  in 
neither  of  these  cases  can  we  discover  that  the  court  discussed  or 
considered  the  real  principle  involved;  and  we  have  been  unable 
to  discover  anything  in  the  cases  cited  by  the  court  to  warrant  the 
decision.  It  is  possible  that  the  case  in  Illinois  may  depend  some- 
what upon  their  statute,  and  the  note  being  made  as  a  mere  matter 
of  amusement,  and  the  making  not  being  justified  by  any  legiti- 
mate pending  business,  the  maker  might  perhaps  justly  be  held 
responsible  for  a  higher  degree  of  diligence,  and  therefore  more 
justly  chargeable  with  negligence  under  the  particular  circum- 
stances, than  the  maker  in  the  present  case. 

There  is  another  case  ( Worcester  Co.  Bank  v.  Dorchester  & 
Milton  Bank,  10  Cush.,  488),  where  bank  bills  were  stolen  from 
the  vault  of  the  bank,  which  though  signed  and  ready  for  use, 
had  never  been  yet  issued,  and  on  which  a  bona  fide  holder  for 
value  was  held  entitled  to  recover.  This,  we  are  inclined  to  think; 
was  correct.  The  court  intimated  a  doubt  whether  the  same  rulej 
should  apply  to  bank  bills  as  to  ordinary  promissory  notes,  and  as 
to  the  latter,  failed  to  make  any  distinction  between  the  question 
of  delivery  and  questions  affecting  the  rights  of  the  parties  upon 
notes  which  have  become  effectual  by  delivery.  But  we  think 
bank  bills  which  circulate  universally  as  cash,  passing  from  hand 
to  hand  perhaps  a  hundred  times  a  day,  without  such  inquiries 
as  are  usual  in  the  cases  of  ordinary  promissory  notes  of  indi- 
viduals, stand  upon  quite  different  grounds.  And,  considering 
the  temptations  to  burglars  and  robbers,  where  large  masses  of 
bank  bills  are  known  to  be  kept,  and  the  much  greater  facility  of 
passing  them  off  to  innocent  parties,  without  detection  or  identi- 
fication of  the  bills  or  the  parties,  and  that  the  special  business 
of  banks  is  dealing  in,  and  holding  the  custody  of,  money  and 
bank  bills ;  it  is  not  unreasonable  to  hold  them  to  a  much  higher 
degree  of  care,  and  to  make  them  absolutely  responsible  for  their 
safe  keeping.  We  do  not  therefore  regard  this  case  as  having 
any  material  bearing  upon  the  case  before  us. 


KlNYON    V.    W'OHLFOKD  -1-59 

We  think  the  Circuit  Court  erred  in  refusing  to  charge  upon 
this  point,  as  requested  by  the  defendant  below. 

We  do  not  think  there  was  any  error  in  refusing  to  charge 
that  the  want  of  a  stamp  on  the  note  would  be  such  circumstance 
of  suspicion  as  to  put  the  indorsee  upon  inquiry  in  taking  the  note. 
Under  our  decisions  the  note  would  be  valid  and  could  be  enforced 
in  our  courts  without  a  stamp. 

Some  other  minor  questions  were  raised,  but  we  do  not  think 
they  will  be  likely  to  arise  upon  a  new  trial. 

The  judgment  must  be  reversed  with  costs,  and  a  new 
trial  awarded.  )  \o\    . 

The  other  justices  concurred.  \y  \J 


Kinyon  v.  Wohlford  {1871),  17  Minn.  239,  10  Am.  Rep.  165. 

Action  on  a  promissory  note.  Judgment  on  a  verdict  for  the 
defendant.     Appeal  by  plaintiff  from  order  denying  a  new  trial. 

Wheelock  &  Cogswell,  for  appellant. 
Gordon  E.  Cole,  for  respondent. 

Berry,  J.  This  is  an  action  upon  a  promissory  note  payable 
by  its  terms  to  C.  W.  Stevens,  or  bearer,  and  signed  by  defendant. 

There  was  plenary  evidence  showing  that  the  plaintiff  is  a 
bona  fide  holder  of  the  note,  having  purchased  the  same  before 
maturity,  in  good  faith,  without  notice  and  for  value. 

The  only  defense  urged  here  is  that  there  was  no  delivery 
of  the  note  to  any  person  by  or  on  behalf  of  the  defendant ;  that 
for  want  of  delivery  it  is  not  the  note  of  defendant,  and  he  is  not 
liable  thereon  even  to  a  bona  fide  holder.  "A  bona  fide  holder  for 
value,  without  notice,  is  entitled  to  recover  upon  any  negotiable 
instrumejit  which  he  has  received  before  it  has  become  due,  not- 
withstanding any  defect  or  infirmity  in  the  title  of  the  person  from 
whom  he  derived  it;  as.  for  example,  even  though  such  person 
may  have  acquired  it  by  fraud,  or  even  by  theft,  or  by  robbery,." 
Story  on  Prom.  Notes,  §  191 ;  2  Gr.  Ev.,  §  171 ;  Swift  v.  Tyson, 
16  Pet.  1  ;  Goodman  v.  Simonds,  20  Howard,  365 ;  Raphael  v. 
Bank  of  England,  17  C.  B.  162;  Wheeler  v.  Guild,  20  Pick.  545; 
Magee  v.  Badger,  34  N.  Y.  249;  Powers  v.  Ball,  27  Vt.,  662; 
Catlin  v.  Hause,  1  Duer,  325  :  Gould  v.  Segee,  5  Duer,  268;  Mars- 
ton  v.  Allen,  8  Mees.  &  Welsby,  494;  Smith's  Lead.  Cases,  597 
et.  seq. ;  1  Ross  Lead.  Cases  205  et.  scq. 


160  Presumption  of  Delivery 

The_fact  that  there  has  been  no  delivery  of  the  instrument  by 
or  for  the  maker,  or  by  or  for  an  indorser  through  whom  the 
holder  must  claim,  is  a  defect  or  infirmity  of  title  within  the 
meaning  of  the  rule  above  cited,  a  rule  which  is  said  to  be  laid 
up  amonglhe  fundamentals  of  the  law.  Worcester  County  Bank 
v.  Dorchester  &  Melton  Bank,  10  Gushing,  488;  Edwards  on  Bills 
and  Notes,  188;  Gould  v.  Segee,  supra;  Ingham  v.  Primrose,  7 
C.  B.  (N.  S.)  82;  Shipley  v.  Carroll,  45  111.  285;  Clark  v.  John- 
son, 54  111.  296. 

The  order  denying  a  new  trial  must  be  reversed. 


Lj^  ^Sl*a^ 


PRESUMPTION    OF    DELIVERY. 

Mass.  Nat.  Bank  v.  Snow  (1905),  18 j  Mass.  159. 


18. 


Contract  on  three  promissory  notes,  each  for  $2,432.33,  dated 
December  9,  1899,  payable  to  and  indorsed  by  the  defendant  and 
discounted  by  the  plaintiff,  as  described  in  the  first  paragraph  of 
the  opinion.    Writ  dated  April  25,  1900. 

At  the  trial  in  the  Superior  Court  before  Harris,  J.,  the  jury 
returned  a  verdict  for  the  defendant;  and  the  plaintiff  alleged 
exceptions,  raising  the  questions  stated  by  the  court. 

E.  P.  Carver  &  F.  H.  Smith,  Jr.,  for  the  plaintiff. 
S.  L.  Whipple  &  E.  M.  Brooks,  for  the  defendant. 

Knowlton,  C.J.  This  is  an  action  of  contract  on  three 
promissory  notes,  signed  H.  G.  and  H.  W.  Stevens,  payable  to 
the  order  of  the  defendant,  indorsed  by  him  in  blank  and  dis- 
counted by  the  plaintiff.  They  severally  bear  date  December  9, 
1899,  and  the  rights  of  the  parties  are  accordingly  governed  by 
the  St.  1898,  c.  533,  sometimes  called  the  negotiable  instruments 
act,  which  is  now  embodied  in  R.  L.  c.  73,  §§  18  to  212,  inclu- 
sive. In  referring  to  different  provisions  of  this  statute  it  may 
be  convenient  to  cite  the  sections  of  the  Revised  Laws,  rather 
than  those  of  the  original  act. 

The  maker  of  the  notes,  H.«  W.  Stevens,  who  did  business 
under  the  name  of  H.  G.  and  H.  W.  Stevens,  has  deceased,  and 
the  defendant  introduced  evidence  tending  to  show  that,  after 
the  defendant  had  indorsed  the  notes,  they  were  taken  from  his 
possession  by  the  maker,  without  his  knowledge  or  consent,  and 


Massachusetts  National  Bank  v.  Snow  161 

discounted  at  the  plaintiff  bank,  and  that  they  were  altered  by 
the  insertion  of  the  words  "seven  per  cent"  after  the  words 
"with  interest."  The  defence  is  founded  on  this  evidence.  The 
defendant's  counsel  stated  that  he  made  no  contention  that  the 
bank  had  actual  knowledge  of  any  infirmity  in  the  instruments, 
or  defect  in  the  title  to  them,  or  that  it  took  them  in  bad  faith. 
Nor  was  it  contended  by  the  defendant  that  in  discounting  the 
notes  the  bank  acted  otherwise  than  in  the  regular  and  usual 
course  of  business.  But  upon  the  defendant's  testimony  it  might 
be  found  that  the  notes  were  given  to  him  by  the  maker  in  pay- 
ment of  indebtedness,  that  after  he  had  indorsed  them  in  blank 
and  put  them  in  his  desk  for  collection  or  discount  he  was  called 
out  of  his  office,  leaving  the  maker  Stevens  there,  and  that 
Stevens  then  took  them  without  right,  and  three  days  later  car- 
ried them  to  the  plaintiff  bank  and  caused  them  to  be  discounted 
for  his  own  benefit.  The  plaintiff  made  many  requests  for  rulings, 
which  were  refused  subject  to  its  exception,  among  which  were 
the  following : 

"First.  That  on  all  the  evidence  judgment  should  be  for  the 
plaintiff  for  the  full  amount  declared  upon  in  its  declaration,  with 
interest  at  seven  per  cent  from  December  9,  1899." 

"Fourth.  That  if  the  plaintiff  shows  it  took  the  notes  declared 
upon  in  its  declaration  as  a  holder  in  due  course,  judgment  should 
be  entered  for  the  plaintiff  for  the  full  amount  of  said  notes  with 
interest  at  the  rate  stated  in  the  same  from  December  9,  1899." 

"Fifth.  That  when  an  instrument  is  in  the  hands  of  a  holder 
in  due  course  a  valid  delivery  thereof  by  all  parties  prior  to  him 
so  as  to  make  them  liable  to  him  is  conclusively  presumed." 

"Eighth.  That  the  notes  declared  upon  by  the  plaintiff  in  its 
declaration  are  complete  and  regular,  and  were  taken  before  they 
were  due,  and  for  value." 

"Ninth.  That  a  holder  of  a  note  is  deemed  prima  facie  to  be 
a  holder  in  due  course  and  that  to  constitute  notice  of  an  infirmity 
in  the  instrument  or  defect  in  the  title  of  the  person  negotiating 
the  same,  the  person  to  whom  it  is  negotiated  must  have  had 
actual  knowledge  of  the  infirmity  or  defect,  or  knowledge  of  such 
facts  that  his  action  in  taking  the  instrument  amounted  to  bad 
faith." 

"Fifteenth.  That  there  is  no  evidence  in  the  case  to  warrant 
a  jury  in  finding  that  the  plaintiff  was  possessed  of  facts  which 
put  it  upon  its  guard  as  to  the  tile  of  the  person  delivering  the 
notes  declared  upon  or  which  ought  to  have  led  the  plaintiff  to 
inquiry  concerning  the  same." 


162  Presumption  of  Delivery 

"Nineteenth.  That  when  an  instrument  has  been  materially 
altered  and  is  in  the  hands  of  a  holder  in  due  course,  not  a  party 
to  the  alteration,  he  may  enforce  payment  thereof  according  to 
its  original  tenor." 

"Twenty-third.  That  even  if  the  jury  should  find  that  the 
words  'seven  per  cent'  were  added  to  the  face  of  said  notes  after 
they  were  indorsed  by  the  defendant,  and  without  his  authoriza- 
tion or  ratification,  yet,  on  all  the  evidence  in  the  case,  the  verdict 
must  be  for  the  plaintiff  for  the  full  amount  of  said  notes,  with 
interest  at  six  per  cent  from  December  9,  1899." 

The  plaintiff  also  excepted  to  the  following  instructions,  given 
at  the  request  of  the  defendant : 

"'Fourth.  If  the  jury  find  that  the  notes  were  taken  from  the 
defendant  wrongfully  and  that  the  same  were  never  delivered 
by  the  defendant  to  Stevens,  the  plaintiff  gained  no  title  to  the 
notes  by  the  negotiation  of  the  same  by  Stevens,  and  the  plaintiff 
cannot  recover. 

"Fifth.  The  burden  is  upon  the  plaintiff  to  show  that  the 
notes  were  delivered  by  the  defendant  to  Stevens  or  some  other 
person  authorized  to  negotiate  them  at  the  plaintiff  bank." 

"Seventh.  Or  in  the  alternative,  if  the  jury  find  that  the 
notes  in  question  were  altered  by  the  addition  of  the  words  'seven 
per  cent'  thereto  after  the  same  were  indorsed  by  the  defendant, 
such  an  alteration  is  a  material  and  wrongful  one,  destroying  the 
validity  of  the  notes,  and  upon  the  notes  or  any  one  of  them  thus 
altered  the  plaintiff  cannot  recover." 

The  notes,  beingf  indorsed  in  blank,  were  payable  to  bearer 
within  the  meaning  of  the  statute.  R.  L.  c.  73,  §  26,  cl.  5.  When 
the  nek's  were  taken  to  the  plaintiff  for  discount  Stevens  was  the 
bearer.  R.  L.  c.  73,  §  207.  The  presentation  of  such  notes  for 
discount_raised  a  presumption  of1  fact  that  the  bearer  was  the 
owner  of  them.  Pctte  v.  Pront,  3  Gray,  502.  Upon  the  undis- 
puted evidence  and  upon  the  defendant's  admission  that  the  plain- 
tiff took  them  in  good  faith  and  discounted,  them  without  knowl- 
edge of  any  infirmity  in  them  or  defect_of_liLle  in  Stevens)_the 
"plaintiff  became  a  holder  in  due  course,  within  the  definition  of 
the  statute.  R.  L.  c.  73,  §§  69,  j6.  Boston  Steel  &  Iron  Co.  v. 
Steuer,  183  Mass.  140.  There  was  not  even  anything  to  put  the 
plaintiff  upon  inquiry,  for  the  rate  of  interest  was  the  same  that 
Stevens  had  been  paying  on  his  loans  from  the  bank  for  two 
years.  The  uncontradicted  evidence,  as  well  as  the  defendant's 
admission,  makes  it  plain  that  the  plaintiff  had  no  notice  of  any. 
infirmity  in  the  instruments  or  defect  in  the  title  of  Stevens,  under 


Massachusetts  National  Bank  v.  Snow  163 

the  rule  prescribed  by  the  statute.  R.  L.  c.  J$,  §  73.  This  rule, 
namely,  that  to  constitute  such  notice  the  person  to  whom  the  note 
is  negotiated  must  have  hacT  actual  knowledge  of~ffie~lh~hrmity  or 
defect, jpr  knowledge  of  such  facts  that  his  action  in  taking  the 
instrument  amounted  to  bad  faith,  is  the  same  as  prevailed  in 
this  Commonwealth  before  the  enactment  of  the  statute.  Smith 
v.  Livingston,  1 1 1  Mass.  342 ;  Lee  v.  Whitney,  149  Mass.  447 ; 
International  Trust  Co.  v.  Wilson,  161  Mass.  80,  90. 

The  defendant's  contention  that  after  the  notes  had  been  deliv- 
ered to  the  defendant  and  endorsed  by  him  they  were  stolen  by 
Stevens,  brings  us  to  the  question  whether,  under  the  negotiable 
instruments  act,  a  holder  in  due  course  of  a  note  payableto 
bjarer_,_jthat  has  ..been  stolen,  rap  acquire  a  inxxTlitle  from  the 
thief.  Even  before  the  enactment  of  the  statute,  while  the  "deci- 
sions were  not  uniform,  the  weight  of  authority  was  in  favor 
of  an  affirmative  answer  to  the  question.  Wheeler  v.  Guild,  20 
Pick.  545,  550,  553 ;  Worcester  County  Bank  v.  Dorchester  & 
Milton  Bank,  10  Cush.  488;  Wyer  v.  Dorchester  &  Milton  Bank, 
11  Cush.  51,  53;  Spooner  v.  Holmes,  102  Mass.  503;  London 
Joint  Stock  Bank  v.  Simmons,  [1892]  A.  C.  201,  and  cases  cited. 
Smith  v.  Union  Bank  of  London,  1  Q.  B.  D.  31  ;  Goodman  v. 
Simonds,  20  How.  343,  365;  Murray  v.  Lardner,  2  Wall,  no; 
Hotchkiss  v.  National  Shoe  &  Leather  Bank,  21  Wall.  354;  Kin- 
yon  v.  Wohlford,  17  Minn.  239;  Clarke  v.  Johnson,  54  111.  296; 
Seybel  v.  National  Currency  Bank,  54  N.  Y.  288;  Evertson  v. 
National  Bank  of  Newport,  66  N.  Y.  14;  Kuhns  v.  Gettysburg 
National  Bank,  68  Penn.  St.  445. 

The  following  specific  language  of  the  statute  touching  this 
question,  as  well  as  its  provisions  in  other  sections,  was  intended 
to  establish  the  law  in  favor  of  holders  in  due  course.  "But 
where  the  instrument  is  in  the  hands  of  a  holder  in  due  course 
a  valid  delivery  thereof  by  all  parties  prior  to  him  so  as  to  make 
them  liable  to  him  Js  conclusively  presumed/'  R.  L.  c.  73,  §33. 
This  conclusive  presumption  exists  as  welj_ wheri_Jhe_  note  is 
taken  from  a  thief  ~as~in  any  other  case.  Of  course  this^  rule 
does ^  noF"apj>ly  to~an  instrument  which  is  jncomplete.  But  in 
reference  to  a  complete,  negotiable  promissory  note  payable  to 
bearer,  it  is  a  wholesome  and  salutary  provision.  See  Grccser  v. 
Sugarman,  76  N.  Y.  Supp.  922.  Upon  the  defendant's  state- 
ment and  the  counsel's  theory  of  the  case,  the  rule  is  applicable. 
The  note  not  only  was  completejn  form  and  in  execution,  but, 
upon  his  testimony,  it  jrad  been  delivered,  to  him  by  the  maker 
as  a  binding  instrument,  and  had  afterwards  been  indorsed  by 


164  Presumption  of  Delivery 

him.  Therefore  the  first  sentence  of  the  R.  L.  c.  73,  §  33,  "Every 
contract  on  a  negotiable  instrument  is  incomplete  and  revocable 
until  delivery  of  the  instrument  for  the  purpose  of  giving  effect 
thereto,"  was  inapplicable.  The  instrument  had  taken  effect,  and 
subsequently  was  negotiated  by  the  bearer  to  the  plaintiff  as  a 
holder  in  due  course.  That  the  bearer  was  also  the  maker  was 
immaterial  after  the  instrument  had  been  so  indorsed  as  to  become 
payable  to  bearer. 

Upon  the  plaintiff's  theory  of  the  facts,  there  was  no  theft, 
but  an  ordinary  accommodation  indorsement  by  the  defendant  for 
the  benefit  of  the  maker,  and  none  of  these  questions  arise. 

We  are  of  opinion  that  the  judge  erred  in  giving  the  fourth 
and  fifth  instructions  requested  by  the  defendant,  and  in  refusing 
other  instructions  requested  by  the  plaintiff,  founded  upon  a  dif- 
ferent view  of  the  statute. 

There  also  was  error  in  the  instructions  given  as  to  the 
alleged  alteration  of  the  notes.  By  the  R.  L.  c.  J^,  §  141,  it  is 
provided  that  "when  an  instrument  has  been  materially  altered 
and  is  in  the  hands  of  a  holder  in  due  course,  not  a  party  to  the 
alteration,  he  may  enforce  payment  thereof  according  to  its 
original  tenor."  This  language  is  directly  applicable  to  the  pres- 
ent case.  See  Scholfield  v.  Earl  of  Londesborough,  [1894]  2.  Q. 
B.  660;  [1895]  1  Q.  B.  536;  [1896]  A.  C.  514;  Schwartz  v. 
Wilner,  90  Md.  136,  143. 

We  understand  that  the  instructions  were  given  independ- 
ently of  any  question  of  pleading,  and  we  therefore  do  not  deem 
it  necessary  to  determine,  at  this  stage  of  the  case,  whether  the 
plaintiff  should  amend  its  declaration  by  inserting  counts  upon 
the  notes  as  they  were  before  the  alleged  alteration,  if  it  wishes 
to  recover  upon  them  as  notes  bearing  interest  at  only  six  per 
cent.  See  Mutual  Loan  Association  v.  Lesser,  78  N.  Y.  Supp. 
629.  Nor  do  we  consider  other  questions  which  are  not  likely 
to  arise  upon  a  second  trial. 

Exceptions  sustained. 


X^t-     >aSlj»^v*>->- 


Averett's  Administrator  v.  Booker  165 

Section  IV — Consideration. 

PRESUMPTION  OF  CONSIDERATION.  §26. 

Averett's  Adm'r  v.  Booker  (1859),  75  Graft.  163,  76  Am.  Dec.  203. 

This  was  an  action  of  assumpsit  in  the  Circuit  Court  of  the 
city  of  Lynchburg,  brought  by  William  T.  Booker  against  Wil- 
liam B.  Averett's  administrator.  The  plaintiff  declared  upon  the 
following  paper,  which  he  averred  was  made  for  value  received. 

$1,080.59  Lynchburg,  December  8,  1852. 

The  trustee  of  Norvell  and  Averett  will  pay  to  William  T. 
Booker  the  sum  of  one  thousand  and  eighty  dollars  and  fifty-nine 
cents,  with  interest  from  1st  of  March,  1850,  out  of  any  moneys  in 
his  hands  belonging  to  me. 

Wm.  B.  Averett. 

On  the  trial  of  the  cause,  the  plaintiff  introduced  in  evidence 
the  foregoing  paper,  and  also  proved  that  it  was  presented  and 
not  paid ;  and  that  there  were  no  effects  out  of  which  the  order 
could,  at  the  time  of  the  trial,  be  paid.  And  this  being  all  the 
evidence  in  the  cause,  the  court,  at  the  instance  of  the  plaintiff, 
instructed  the  jury  that  they  might  infer  from  the  paper  afore- 
said, a  consideration  moving  from  the  plaintiff  to  the  defendant's 
intestate,  which  entitled  him,  without  further  evidence  than  the 
paper  itself,  to  recover  in  this  case. 

To  this  opinion  of  the  court  the  defendant  excepted :  And 
there  having  been  a  verdict  and  judgment  against  him,  he  applied 
to  a  judge  of  this  court  for  a  supersedeas;  which  was  allowed. 

Green,  for  the  appellant. 
Garland,  for  the  appellee. 

Lee,  J.  The  only  question  in  this  case  is  that  raised  by  the 
instruction  asked  for  by  the  defendant  in  error  upon  the  trial. 
The  declaration  unlike  that  in  Jackson  v.  Jackson,  10  Leigh  448, 
sufficiently  avers  a  consideration  for  the  draft  or  order  which  it 
describes,  but  as  when  it  was  produced  at  the  trial  no  considera- 
tion was  expressed  upon  its  face  and  it  was  not  stated  to  have 
been  made  "for  value  received,"  the  question  made  was  whether 
the  jury  could  from  the  paper  alone  infer  such  a  consideration 
moving  from  the  defendant  in  error  to  the  plaintiff's  intestate 
as  would  entitle  him  to  recover  without  further  evidence. 


166  Presumption  of  Consideration 

If  the  order  in  question  were  good  as  a  bill  ofj2XC_hjinge  it 
cannot  be  questioned  that  the  party  might  have  recovered  upon_ 
u  without  averring  in  his  declaration  or  proving  at  the  trial  that_ 
any  value  had  _been  received  for  it,  as  such  a  bill  is  presumed  to 
stand  o^valuable_  consideration  _an_d  prima  facie  to  import  it. 
i  f'.ayly  on  Bills,  ch.  i,  §  13,  p.  40:  Macleed  v.  Snee,  2  Str.  K.  762; 
Poplewell  v.  Wilson,  1  Id.  264;  Philliskirk  v.  Blackwell,  2  Maule 
&  Sel.  395;  Wilson  v.  Coalman's  ex' or,  3  Cranch's  R.  193,  207; 
Hatch  v.  Trayes,  1 1  Adolph  &  El.  702 ;  39  Eng.  C.  L.  R.  207 ; 
Jones  v.  Jones,  6  Mees.  &  Welsb.  84;  Bayly  on  Bills,  ch.  9,  p. 
390;  Coombe  v.  Ingram,  4  Dowl.  &  Ryl.  211.)  But  I  think  it 
clear  that  this  paper  cannot  be  regarded  as  a  bill  of  exchange, 
nor  as  carrying  with  it  the  exemption  pertaining  to  that  class  of 
securities  from  the  necessity  of  both  averring  and  proving  a 
sufficient  consideration  as  the  condition  of  recovering  upon  it. 
To  constitute  a  good  bill  of  exchange,  the  sum  to  be  paid  must 
not  onTy  be  in  money  and  certain  in  amount,  but  it  must  be  pay- 
able absolutely  and  at ..ajl__events.  If  it  be  payable  out  of  a  par- 
ticular  fund  or  upon  an  event  which  is  contingent,  or  if  it  be_ 
otherwise  conditional,  it  is  not_jn_contemplation  of  law  a  bill  of__ 
exchange.  (Roberts  v.  Peake,  1  Burr,  R.  323  ;  Carlos  v.  Fanconrt, 
5  T,  R.  482;  Chitty  on  Bills,  ch.  5,  p.  152,  ct  seq.;  Bayly  on  Bills, 
ch.  1,  §  6,  p.  16,  et  seq.;  Story  on  Bills,  §  46;  Crawford  v.  Bully, 
Wright's  R.  453 ;  Van  Vacter  v.  Flack,  1  Smedes  &  Marsh.  R. 
393;  Hamilton  v.  Myrick,  3  Pike's  R.  541.)  Here  the  sum  to  be 
paid  is  not  payable  absolutely_and  at  all  events.  _It  is  payable  out 
of_a ^particular  fund,  to  wit,  the  moneys,  if  any,  in  the  hands  of 
the  drawee  belonging  to  the  drawer.  The  draft  therefore  cannot 
be  treated  as  a  bill  of  exchange,  nor  can  a  recovery  be  had  upon 
it  as  such. 

So,  again,  if  the  paper  in  question  contained  an  express 
promise  to  pay  the  sum  mentioned  upon  which  an  action  of  debt 
might  be  maintained  under  our  statute,  I  incline  to  think  that  the 
recovery  might  be  had  without  further  proof  of  consideration.  If 
debt  would  lie  upon  the  paper,  it  would  be  evidence  of  such 
indebtedness  as  would  be  a  sufficient  consideration  for  the  pur- 
pose to  pay  in  the  action  of  assumpsit.  The  case  of  Jackson  v. 
Jackson,  above  cited,  so  far  as  it  is  of  any  authority,  having  been 
decided  by  a  court  equally  divided,  shows  that  it  is  not  necessary 
in  such  a  case  even  to  aver  a  consideration.  For  the  declaration 
without  averring  such  consideration  was  sustained  by  the  court 
below,  and  that  judgment  was  affirmed  by  the  division  of  this 
court.     But  it  is  unnecessary  to  go  into  this  question  in  this  case, 


Averett's  Administrator  v.  Booker  167 

because  whilst  the  declaration  in  all  its  counts  sufficiently  avers 
a  consideration,  it  is  not  pretended  that  the  paper  offered  in  evi- 
dence contained  any  thing  that  could  by  any  construction  bTheld 
tojie  an  express  promise  to  pay  the  sum  of  money  mentioned  in 
jt.  And  not  being  a  bill  of  exchange,  no  promise  is  raised  by  law 
in  favor  of  the  payee  against  the  drawer  from  the  failure  of  the 
drawee  to  accept  or  to  pay,  (Tosceline  v.  Lasserrc,  Fortesc.  R. 
28]  ;  S.  C.  10  Mod.  R.  294,  316;  Jenny  v.  Herlc,  1  Stra.  R.  591 ; 
S.  C.  2  Ld.  Raym.  R.  1361 ;  Hay  dock  v.  Lynch,  2  Ld.  Raym.  R. 
1563;  Banbury  v.  Lissct,  2  Stra.  R.  121 1 ;  Dazi'kes  v.  DeLorane, 
3  Wils.  R.  207;  S.  C.  2  Wm.  Black.  R.  782;  Nichols'  adm'r  v. 
Davis,  1  Bibb's  R.  490;  Mcrshon  v.  Withers,  Id.  503;  Carlisle  v. 
Dubrec,  3  J.  J.  Marsh.  R.  542.) 

The  case  of  Jolliffe  v.  Higgins,  6  Munf.  3,  might  seem  at 
first  blush  from  the  reporter's  syllabus  of  the  point  decided,  to 
be  somewhat  in  conflict  with  the  principles  above  stated ;  but 
upon  closer  examination,  I  think  the  decision  will  be  found  to 
be  in  perfect  harmony  with  them  and  to  be  abundantly  sustained 
upon  the  case  itself.  No  reasons  are  assigned  by  the  court  for 
affirming  the  judgment,  but  upon  the  report  of  the  case,  I  think 
we  can  see  ample  grounds  on  which  to  vindicate  its  correctness 
without  disturbing  any  of  the  principles  to  which  I  have  averted. 
The  action  was  assumpsit  and  the  declaration  counted  specially 
on  the  draft  or  order  set  out,  and  also  for  money  had  and  received 
by  the  defendant  to  the  use  of  the  plaintiff.  The  plea  was  the 
general  issue;  and  at  the  trial,  the  defendant  demurred  to  the 
evidence.  This  consisted  of  the  draft  or  order  described  in  the 
declaration  by  which  the  drawer  (the  defendant)  directed  the 
drawee  (Waite)  to  pay  to  the  plaintiff  the  sum  of  one  hundred 
and  eight  dollars  and  eighty-five  cents  which  the  order  stated  he 
(the  drawer)  had  lodged  in  the  hands  of  the  drawee  and  was  the 
property  of  the  payee  as  guardian  &c,  with  proof  of  non-payment 
by  the  drawee,  and  protest  therefor,  and  notice  to  the  drawer ; 
and  also  that  the  drawer  had  never  deposited  any  such  funds  or 
other  funds  whatsoever  with  the  drawee.  Now,  I  do  not  think 
it  by  any  means  clear  that  the  order  was  not  good  as  a  bill  of 
exchange.  Mr.  Wickham  for  the  plaintiff  in  error,  it  is  true, 
contended  that  it  was  not  because  it  was  not  made  payable  to 
order,  and  was  drawn  on  a  particular  fund :  and  this  Mr.  Leigh 
appears  to  have  conceded.  Formerly  it  was  doubted  whether  jt^ 
wa_s_jigt_essential  to  the  character  of  a  bill_ol_ey^bnngp  that  it 
_should  be  payable,  e.  g.,  to  A  or  his  order  or  to  bearer.  But  it  is 
now  well  settled  that  it  is  not  essential  to  the  character  either 


16b  Presumption  of  Consideration 

of  a  bill  of  exchange  or  of  a  promissory  note  that  it  should  be 
negotiable.  (Chadwick  v.  Allen,  Str.  R.  706;  Smith  v.  Kendall, 
6  T.  R.  123 ;  Tlte  King  v.  Box,  6  Taunt.  R.  325 ;  Burchcll  v.  Slo- 
cock,  2  Ld.  Raym.  R.  1545;  Bayly  on  Bills,  ch.  1,  §  10,  p.  33; 
Chitty  on  Bills,  ch.  5,  p.  181  ;  Story  on  Bills,  §69.)  And  it  may 
with  great  force  be  contended  that  the  order  to  pay  was  neither 
conditional  nor  restricted  to  any  particular  fund,  but  as  well  as 
can  be  ascertained  from  the  statement  of  the  case,  was  absolute 
and  unconditional  to  pay  the  amount.  It  is  true  it  was  added 
that  the  drawer  had  lodged  the  amount  in  the  hands  of  the  drawee 
and  that  it  was  the  property  of  the  payee.  Whether  this  state- 
ment was  true  or  false  would  not  affect  the  character  of  the 
order.  The  theory  of  every  bill  of  exchange  is  that  the  drawer 
has  funds  in  the  hands  of  the  drawee  subject  to  his  order,  and 
whether  this  be  true  or  false  the  character  of  the  bill  is  the  same. 
(See  Story  on  Bills,  §  13.)  The  reason  given  for  making  the  draft 
would  not  necessarily  change  the  absolute  character  of  the  order, 
or  whether  true  or  false,  affect  its  legal  character  and  incidents. 
It  would  seem  to  fall  rather  within  a  class  of  cases  which  are 
carefully  distinguished  from  those  in  which  the  order  is  to  pay 
out  of  a  particular  fund,  although  at  first  glance  they  might  seem 
to  be  of  them.  Thus  a  bill  drawn  by  a  freighter  payable  to  a 
person  entitled  to  receive  the  freight  "on  account  of  freight,"  is 
good,  for  it  is  not  payable  out  of  a  particular  fund  but  merely 
shows  to  what  account  it  is  to  be  applied  or  what  is  the  value 
that  has  been  received.  (Picrson  v.  Dunlop,  Cowp.  R.  571.)  So  a 
bill  for  money  as  "the  drawer's  quarters  half  pay  by  advance" 
is  good ;  for  it  is  not  payable  out  of  a  particular  fund  but  is  to  be 
paid  in  advance ;  and  will  be  payable  whether  the  half  pay  ever 
become  due  or  not.  (Maclccd  v.  Snee,  2  Stra.  R.  762.)  And  so 
specifying  the  fund  in  any  other  manner  out  of  which  the  value 
was  received  for  which  the  bill  is  drawn  will  not  vitiate  the  bill ; 
thus  stating  "value  received  out  of  the  premises  in  Rosemary 
Lane,"  or  "being  a  portion  of  a  value,  as  under,  deposited  in 
security  of  payment  hereof ;"  or  "on  account  of  wine  had  by  me" 
(the  drawer)  ;  or  "being  so  much  due  by  me  to  A.  at  Lady-day 
next."  In  these  cases  the  bill  is  not  payable  out  of  a  particular 
fund,  but  it  only  specifies  the  value  received  and  the  occasion  of 
the  draft.  (See  Haussoullier  v.  Hartsinck,  7  T.  R.  733.  Bayly 
on  Bills,  p.  18;  Story  on  Bills,  §  47.) 

But  if  the  order  could  not  be  treated  as  a  bill  of  exchange, 
certainly  from  its  terms  it  might  be  fairly  and  legitimately 
inferred  that  the  defendant  had  had  in  his  hands  money  belong- 


^ 


Averett's  Administrator  v.  Booker  169 

ing  to  the  plaintiff  which  he  had  failed  to  pay  over  to  him  and 
which  he  falsely  pretended  by  the  order  he  had  lodged  in  Wake's 
hands  for  him.  The  amount  therefore  would  clearly  he  recover- 
able in  an  action  for  money  had  and  received  and  the  demurrer 
to  the  evidence  could  not  avail  the  defendant. 

The  court  may  therefore  have  thought  either  that  the  order 
in  this  case  was  good  as  a  bill  of  exchange,  or  that  the  evidence 
was  sufficient  to  sustain  the  second  count  of  the  declaration,  and 
that  the  judgment  was  therefore  right,  and  should  be  affirmed. 

All  contracts  by  our  law  must  be  either  contracts  by  specialty 
or  contracts  by  parol.  If  not  by  sealed  instrument,  they  are 
parol  whether  verbal  or  in  writing,  and  if  in  writing,  whatever 
""  may  be  the  rule  of  the  civil  law,  or  whatever  the  doubt  created 
by  the  remarks  of  Lord  Mansfield  and  Justice  Wilmot  in  Pillans 
v.  Mierop,  3  Burr.  R.  1668,  et  seq.,  there  must  be  in  general  a 
sufficient  consideration  to  support  them,  just  as  if  they  were 
proved  by  parol  evidence  only.  The  authorities  for  this  propo- 
sition are  numerous  and  familiar,  and  I  deem  it  unnecessary  to 
stop  to  cite  any.  Commercial  paper  and  perhaps  promises  in 
writing  for  the  payment  of  money  on  which  debt  would  lie  under 
our  statute,  constitute  exceptions  to  the  rule,  but  otherwise  it  is 
universal  and  pervading.  Accordingly,  the  defendant  in  error 
recognizing  the  rule  and  its  applicability  to  this  case,  asked  the 
court  to  instruct  the  jury  that  they  might  infer  the  consideration 
from  the  paper  itself,  and  the  court  gave  the  instruction  asked. 
The  whole  case  then  is  resolved  into  the  enquiry  whether_the  I 
paper  does  of  itself ,  ^u^rmsji_proof_of  a  legal  promise  and  a  suffi-J 
cient  consideration  ? 

Now  I  apprehend  that  a  paper  of  this  character  can  only  be 
saicijo  furnish,  such  proof,  where  the  consideration  is  stated  in  it 
or  it_is___stated  to  be  for  value  received,  or  some  equivalent^  or 
where  the  terms  m.  which  it  is  expressed  are_  inconsistent  with 
anv_other  theory  than  that  it  was  upon  a  consideration.  If  those 
terms  are  just  as  consistent  with  the  theory  of  a  total  want  of 
consideration  as  they  are  with  that  of  its  existence,  it  would  seem 
impossible  to  say  that  they  afford  such  a  legal  presumption  that 
the  paper  was  founded  on  a  consideration  as  would  justify  the 
jury  in  finding  it  as  a  fact.  In  the  paper  i  1 1  qiiesUoiVJio^ojisidex: 
ation  is  stated  nor  is  the  draft  stated  to  be  made  "for  value 
received,"  nor  are  any  equivalent  terms  used  showing  that  it 
was  made  for  a  consideration  And  taking  all  the  terms  of  the 
paper  together  they  are  at  least  as  consistent  with  the  theory  of 
an  absence  of  all  consideration  as  they  are  with  that  of  any  value_ 
received.     The  terms  of  the  order  would  admit  equally  well  of 


170  Presumption  of  Consideration 

several  different  constructions.  The  drawer  might  have  known 
that  he  had  just  such  a  sum  in  the  hands  of  the  drawee  and 
intended  merely  to  give  authority  to  the  latter  to  deliver  the  same 
to  the  payee  for  him.  Or  without  knowing  whether  the  trustee 
had  received  funds  for  him  or  not,  might  have  merely  given  the 
order  if  he  had,  to  authorize  the  payee  to  receive  them  for  him 
as  his  agent.  The  counsel  for  the  defendant  in  error,  it  is  true, 
asserts  that  the  order  was  drawn  at  a  time  and  at  a  place  at  which 
the  plaintiff's  intestate  might  have  as  conveniently  drawn  his 
funds  from  the  hands  of  the  drawee  himself  as  Booker  the  payee 
could  do  it  for  him.  Nothing  of  this  however  appears  in  the 
record,  nor  does  it  appear,  as  is  also  alleged,  that  the  intestate 
was  a  partner  of  the  firm  of  Norvell  &  Averett.  If  these  facts 
would  have  influenced  the  case  they  were  not  before  the  jury, 
there  being,  as  has  been  stated,  no  evidence  whatever  except  the 
order  itself,  and  proof  of  non-payment,  and  that  there  were  no 
effects  out  of  which  it  could  be  paid.  So,  it  is  perfectly  in  con- 
sistence with  the  terms  of  the  order,  that  it  may  have  been  drawn 
for  the  purpose  of  loaning  the  amount  to  the  payee  if  the  drawer 
had  the  funds  in  the  hands  of  the  drawee,  or  of  making  a  gift 
to  him  of  the  amount  if  it  could  be  had.  Either  of  these  hypoth- 
eses and  others  that  might  be  suggested  are  just  as  reasonable 
as  that  insisted  on  by  the  defendant  in  error  that  the  order  was 
given  in  discharge  of  a  debt  due  him  from  the  payee;  and  I 
cannot  think  the  circumstance  that  the  order  calls  for  interest 
on  the  sum  named  from  a  given  day  is  of  such  conclusive  import 
as  is  attributed  to  it  by  the  counsel.  Whilst  it  is  strictly  consis- 
tent with  the  existence  of  a  debt  that  was  thereby  settled,  it  is 
not  inconsistent  with  either  of  the  ojier  hypotheses  suggested. 

The  court  having  given  the  instructions  asked  for,  ignored 
all  the  other  hypotheses  than  that  of  a  debt  due  to  the  payee  from 
the  drawer  or  of  value  received  by  the  latter;  and  as  the  jury 
were  told  they  might  infer  a  consideration  from  the  paper  itself, 
they  could  only  regard  it  as  peremptory  to  them  to  make  that 
inference,  because  if  they  might  infer  it,  it  was  their  duty  to  infer 
it;  and  to  say  that  they  might  infer  it  was  equivalent  to  saying 
that  they  must  infer  it  because  it  was  a  matter  not  depending  on 
the  weight  of  evidence  or  force  of  circumstance  but  simply  upon 
the  legal  import  of  the  paper  itself. 

I  think  the  Circuit  Court  erred  in  giving  the  instruction 
asked  for.  and  am  of  opinion  to  reverse  the  judgment. 

Allen,  P.  and  Daniel  J.  concurred  in  the  opinion  of  Lee,  J. 

Moncure,  J.,  concurred  in  the  result. 

Judgment  reversed. 


V-  °b- 


CODDINGTON    V.    BAY  171 


WHAT  CONSTITUTES  CONSIDERATION.  §  2"]. 

Coddington  v.  Bay  {1822),  20  Johns.  636,  11  Am.  Dec.  342. 

Appeal  from  the  Court  of  Chancery.  The  bill,  filed  June  15, 
1819,  by  the  respondent  against  the  appellants,  stated,  that  in 
April,  1819,  being  the  owner  of  a  vessel  called  the  Express,  he 
employed  R.  &  S.,  who  were  merchants  and  copartners  in  trade, 
in  New  York,  to  sell  her,  on  a  credit,  and  instructed  them  to  take 
good  approved  notes  in  payment,  and  to  transmit  them  forthwith 
to  him,  with  an  account  of  their  charges,  which  should  be  immedi- 
ately paid,  with  which  instructions  R.  &  S.  engaged  to  comply. 
That  R.  &  S.  sold  the  vessel  for  3,875  dollars,  and  on  the  3d  of 
June,  1819,  received  from  the  purchaser,  six  promissory  notes, 
dated  May  5,  1819,  at  two,  four  and  six  months,  payable  to  R.  & 
S.,  or  order,  which  they  refused  to  deliver  to  the  respondent. 
That  R.  &  S.  became  insolvent,  and  delivered  the  notes  to  the 
appellants,  J.  J.  &  J.  C.  Coddington,  who  were  under  large 
advances  and  responsibilities  for  R.  &  S.  The  bill  charged,  that 
the  appellants,  when  they  received  the  notes  of  R.  &  S.,  knew 
that  they  had  been  given  in  payment  for  the  vessel  belonging  to 
the  respondent,  which  had  been  sold  for  his  account  by  R.  &  S. 
The  bill  prayed,  that  the  appellants  might  be  decreed  to  deliver 
up,  and  account  to  the  respondent  for  the  notes.  The  answer 
admitted  that  R.  &  S.  had  stopped  payment  when  they  delivered 
the  notes  to  the  appellants,  who  admitted,  that  when  they  received 
the  notes,  R.  &  S.  were  not  actually  indebted  to  them,  otherwise 
than  that  they  were  under  large  gratuitous  responsibilities  for  R. 
&  S.,  as  endorsers  of  notes  for  their  accommodation,  payable  at 
different  times,  but  subsequent  to  the  12th  of  June,  1819,  and 
which  they  were,  afterwards,  obliged  to  take  up  as  they  fell  due. 
The  appellants  denied  all  knowledge  of  the  manner  in  which  the 
notes  had  come  to  the  hands  of  R.  &  S.,  and  they  alleged,  that 
they  believed  them,  at  the  time,  to  be  the  exclusive  and  bona  fide 
property  of  R.  &  S.,  and  received  them,  with  others,  to  indemnify 
them,  as  far  as  they  would  avail,  for  their  responsibilities.  That 
three  days  after  the  notes  were  delivered  to  them,  they  disposed 
of  some  of  them  for  cash ;  and  did  not  know,  until  several  days 
afterwards,  that  they  belonged  to  the  respondent,  as  stated  in  his 
bill.  R.  &  S.,  in  their  answer,  say,  that  when  they  received  the 
notes  of  the  purchasers  of  the  vessel,  they  gave  their  guaranty 
against  any  demands  existing  against  the  vessel  previous  to  the 


172  What  Constitutes  Consideration 

sale,  and  paid  her  bills  in  New  York,  amounting  to  48  dollars  and 
14  cents,  and  that  their  commissions  on  the  sale  amounted  to  96 
dollars  and  87  cents,  and  that  they  had  received  no  counter  secur- 
ity for  their  guaranty.  Replications  were  filed  to  the  answers, 
but  no  proofs  were  taken  in  the  cause,  which  was  brought  to  a 
hearing  on  the  pleadings;  and  on  the  8th  of  January,  1821,  the 
chancellor  decreed,  that  the  appellants  were  not  entitled  to  the 
notes,  or  the  proceeds  thereof,  as  against  the  respondent,  who 
was  the  lawful  owner  of  them  when  they  were  transferred  to  the 
appellants ;  inasmuch  as  they  did  not  receive  the  notes  in  the 
course  of  business,  nor  in  payment,  in  whole,  or  in  part,  of  any 
then  existing  debt,  nor  for  cash,  or  property  advanced,  or  debt 
created,  or  responsibility  incurred  on  the  credit  of  the  notes ; 
and  he  directed  a  reference  to  a  master  to  compute  the  amount 
of  the  notes,  with  interest ;  and  that  the  appellants,  and  R.  &  S., 
or  some,  or  one  of  them,  pay  to  the  respondent  the  sum  that  should 
be  reported  as  the  amount  of  the  notes  and  interest,  in  thirty  days 
after  the  report  was  filed,  and  notice  thereof,  &c. ;  and  that  R.  & 
S.  pay  to  the  respondent  his  entire  costs  of  suit,  to  be  taxed,  and 
that  he  give  credit  upon  those  costs  for  the  charges  and  commis- 
sions due  from  him  to  R.  &  S.,  on  the  sale  of  the  vessel,  and  that 
the  respondent  have  execution  for  the  balance;  but  that  no  costs 
be  allowed  to  the  respondent,  or  the  appellants,  J.  J.  &  J.  C.  Cod- 
dington,  as  against  each  other.  From  this  decree  an  appeal  was 
entered  to  this  court. 

Van  Buren,  for  the  appellants. 
S.  Jones,  contra. 

Woodworth,  J.  Randolph  &  Savage  were  the  agents  of  the 
respondent,  and,  as  such,  held  certain  promissory  notes  belonging 
to  him,  which  they,  on  the  12th  of  June,  1819,  fraudulently,  and 
without  authority,  passed  to  the  appellants.  It  is  stated,  in  the 
answer,  that  at  the  time  the  notes  were  received  by  the  appellants, 
Randolph  &  Savage  were  not,  in  a  strict  legal  sense,  indebted  to 
them  in  any  amount  whatever ;  but  that  the  appellants  were  under 
engagements  and  responsibilities  for  them,  having  endorsed  cer- 
tain notes  for  R.  &  S.,  and  lent  them  their  own  notes  to  a  large 
amount,  none  of  which  had  then  fallen  due.  That  the  appellants 
received  the  notes  in  question  as  a  guaranty  and  indemnity  against 
the  responsibilities  they  were  under,  (all  of  which  were  then  con- 
tingent,) and  without  notice  of  any  interest,  right  or  title  of  the 
respondents. 


C0DD1NGT0N    V.    BAY  173 

The  prayer  of  the  bill  is,  that  the  notes  so  received  be  deliv* 
ered  to  the  respondent,  or  the  amount  paid  to  him. 

This  brief  statement  presents  a  case  of  hardship,  let  the  loss 
fall  as  it  may,  inasmuch  as  no  fraud  is  imputable  to  either  of  the 
parties  concerned  in  this  appeal.     The  question  is  one  of  strict 
law,  in  the  decision  of  which,  the  community  at  large,  and  more 
especially  the  commercial  part,  have  a  deep  interest.    Any  fluctua- 
tion in  the  law  relating  to  bills  of  exchange  and  promissory  notes, 
would  be  a  serious  evil,  and  necessarily  affect  the  circulation  of 
this   species  of  paper:   distrust,  and   want  of  confidence,   would 
embarrass  mercantile  operations,  unless  the  rule  to  be  applied  be 
stable  and  uniform.     With  this  view,  I  have  carefully  examined 
the  cases  cited  on  the  argument.     The  general  rule  laid  down 
seems  to  be  this,  that  where  negotiable  paper  is  transferred  for  a 
valuable  consideration,  and  wiUioutjiotice^anyJ^aud^he  right 
of    the    holder    shall    prevail    against    the   true    ownerj    all    the 
cases  substantially  agree  in  this.     In  the  application  of  the  rule, 
this  question  arises,  What  is  that  valuable  consideration  intended, 
which  shall  protect  the  holder  as  against  the  drawer  of  the  note? 
Is  the  rule  satisfied,  if  enough  is  shown  to  make  out  a  considera- 
tion, as  between  the  holder  and  the  agent,  who  assigned  or  trans- 
ferred the  paper?     If  nothing  more  is  required,  the  appellants 
must  prevail ;  for  the  notes  were  passed  for  the  indemnity  of  the 
appellants,  and,  so  far  as  Randolph  &  Savage  are  concerned,  that 
formed   a  valid  consideration.     The   right  to  hold   against   the 
owner,  in  any  case,  is  an  exceptionjojthe_ggneral  rule  of  law ;  it 
Is  founded  on  principles  of  commercial  policy.     The  reason  of 
Mich  la~ruIe~would  seem  to  be,  thatthe  innocent  holder,  having 
incurred  loss  "by  giving  credit  to  the  paper,  and  having  paid  a 
fair  equivalentls  entitled  to  protection.    But  what  superior  equity 
haTthe  holder,~who  made  no  advances,  nor  incurred  any  respon- 
"sibilityoirthe  credit  of  the  paper  he  received,  whose  situation  will 
Joe  improved,  if  he  is  allowed  to  retain,  but,  if  not,  is  in  the  condi- 
tion hewasj^ejorg.  the  paper  was  passed  ?    To  allow  such  a  state 
of  facts  as  sufficient  to  resist  the  title  of  the  real  owner,  woWbe 
pr<  xluctiyejf  rnanifesTlnTustice,,  and  is  not~~required  by  any  rule 
of  policy;  it  is  enough  if  the  holder  be  secure  when  he  advances 
his  funds,  or  makes  himself  liable  on  the  credit  of  the  paper  he 
receives.     In  coincidence  with  this  principle,  it  appears  to  me, 
all  the  cases  have  been  decided  ;  for,  although  the  rule  is  laid  down 
generally,  and  the  holder  will  be  protected  where  the  bill  or  note 
is  taken  in  the  usual  course  of  trade,  and  for  a  fair  and  valuable 
consideration  without  notice,  in  every  case  I  have  met  with,  where 


174  What  Constitutes  Consideration 

the  owner  failed  to  recover,  it  appeared  that  the  holder  gave  credit 
to  the  paper,  received  it  in  the  way  of  business,  and  gave  money 
or  property  in  exchange.  In  Miller  v.  Race  (i  Burr.  Rep.  452) 
it  is  stated,  that  the  mail  was  robbed,  a  bank  note  taken  out,  and 
afterwards  passed  to  the  plaintiff,  an  inn-keeper,  who  took  it  bona 
fide,  in  his  busiiicss,  for  a  valuable  consideration,  and  without 
notice ;  it  was  held,  that  the  plaintiff  was  entitled  to  the  note. 
In  Grant  v.  Vaughan,  (3  Burr.  Rep.  1526)  the  plaintiff  took  a  bill 
of  exchange  that  had  been  lost,  and  paid  the  value  of  it ;  it 
was  held  that  he  was  entitled  to  the  bill.  Mr.  Justice  Wilmot, 
in  that  case,  observes,  ''Though  both  the  claimants  were  innocent, 
yet,  as  Grant  took  the  note  in  the  course  of  trade,  bona  fide,  and 
upon  a  valuable  consideration,  Grant  has  the  better  equity."  Upon 
what  is  this  better  equity  founded  ?  Because  Grant  parted  with 
his  property  for  the  bill,  and  was  an  innocent  holder.  In  Peacock 
v.  Rhodes,  (Doug.  Rep.  633)  it  was  held,  that  an  innocent  endor- 
see might  recover  on  a  bill  of  exchange  with  a  blank  endorsement, 
which  had  been  stolen  and  negotiated  ;  but  it  appeared,  that  the 
person  who  transferred  the  bill,  bought  cloth  and  other  articles  in 
the  way  of  the  plaintiff's  trade,  as  a  mercer,  and  received  the 
value.  Lord  Mansfield  says,  "The  jury  have  found  that  the  bill 
was  received  in  the  course  of  trade,  and,  therefore,  the  case  is 
clear,  and  within  the  principle  of  all  the  cases,  from  that  of  Mil- 
ler v.  Race,  downwards."  So,  also,  in  the  case,  of  Collins  v.  Mar- 
tin, (1  Bos.  &  Pull.  648)  it  was  held,  that  if  A.  deposit  bills 
endorsed  in  blank  with  B.,  his  banker,  to  be  received  when  due, 
and  the  latter  raises  money  on  them,  by  placing  them  with  C., 
and,  afterwards,  becomes  bankrupt,  A.  cannot  maintain  trover 
against  C.  for  the  bills.  In  that  case,  as  in  all  the  preceding,  the 
holder  paid  value  for  the  bill ;  an  advance  was  made  in  money ; 
had  that  not  been  made  out,  it  is  evident  to  my  mind  that  the 
holder  would  not  have  been  protected.  Chief  Justice  Eyre,  in 
giving  the  opinion  of  the  court,  observes,  "If  the  holder  gave  no 
value  for  the  bill,  he  would  be  affected  by  everything  which  would 
affect  the  first  holder."  What  is  meant  by  giving  value  for  the 
bill,  must  be  collected  from  the  whole  case  of  which  he  is  speak- 
ing. The  holder,  in  that  case,  advanced  his  money  on  the  credit 
of  the  bill.  The  language  of  the  court  cannot  be  mistaken :  some- 
tlnngjriustjiave  beenjDaid  in  money  or  property ^or  some  existing 
debt  satisfied  thereby,  or  sonic  new  responsibility  incurred  in  con- 
sequence of  the  transfer ;  this  would  be  paying  value,  and  making 
out  a  good  consideration  within  the  reason  and  meaning  of  the 
jrile.    In  such  a  case,  the  holder  of  a  bill  of  exchange  or  promis- 


CODDINGTON    V.    BAY  175 

sory  note,  is  not  to  be  considered  in  the  light  of  an  assignee  of 
the  payee,  and  bound  to  take  the  thing  assigned,  subject  to 
all  the  equity  to  which  the  original  party  was  subject;  but  he 
stands  on  the  ground  of  an  innocent  purchaser  of  negotiable 
paper,  who,  having  parted  with  his  property,  is  entitled  to  the 
benefit  resulting  from  his  purchase,  in  opposition  to  the  right 
owner.  So,  also,  in  Lawson  v.  Weston,  (4  Esp.  N.  P.  Rep.  56) 
where  a  lost  bill  had  been  discounted,  the  plaintiff  recovered. 
Lord  Kenyon  considered  the  point  settled  by  the  case  of  Miller  v. 
Race,  and  observed,  "If  there  was  any  fraud  in  the  transaction, 
f  1 :'  1  .>na  tide  consideration  had  not  been  paid  for  the  bill  b\ 
jtlie  plaintiffs,  they  could  not  recover."  The  general  rule  is  to  be 
understood  as  applicable  to  cases  of  this  description ;  there  does 
not  seem  to  be  any  necessity  to  go  further.  The  credit  of  bills  and 
notes  cannot  be  impaired,  or  their  circulation  impeded,  if  the 
right  of  the  holder  is  limited  and  restricted  in  this  manner.  He 
still  retains  all  the  rights  that  the  law  intended  to  confer  on  him, 
or  that  commercial  policy  can  reasonably  require.  To  deny  the 
relief  prayed  for  by  the  respondent,  would  introduce  a  new  rule, 
not  warranted  by  any  of  the  adjudged  cases. 

Every  man  who  takes  negotiable  paper,  is  supposed  to  know, 
that  he  doejTnot  acquire  an  indefeasible  right.  A  note  given  for 
money  won  at  play,  or  upon  a  usurious  consideration,  may  be 
inquired  into  in  the  hands  of  an  innocent  endorsee.  Does  this 
obstruct  the  circulation  of  bills  or  notes  ?  So  every  holder  knows, 
or  is  presumed  to  know,  that  the  title  of  the  right  owner  cannot 
be  divested,  unless  value  has  been  given,  or  liability  incurred.  The 
rule,  then,  as  I  conceive,  is  well  established,  and  must  govern  the 
present  case.  The  question  is,  whether  the  appellants  are  within 
its  provisions.  Randolph  &  Savage  had  stopped  payment,  and 
were  insolvent,  which  was  known  to  the  appellants  at  the  time 
they  received  the  notes.  They  were  not  then  indebted  to  the 
appellants,  for  none  of  the  notes  were  due ;  the  liability  of  the 
appellants  was  still  contingent,  although  it  was  admitted  there 
was  good  reason  to  believe  it  would  soon  become  absolute.  No 
responsibility  was  incurred  in  consequence  of  taking  the  notes  j 
they  were  received  as  an  indemnity ;  the  situation  of  Randolph 
and  Savage  was  desperate,  and  no  doubt  the  appellants  were 
anxious  to  get  hold  of  anything  that  had  the  semblance  of 
security.  If  the  notes  became  effectual  in  their  hands,  then  so 
much  was  gained ;  if  not,  they  remained  in  statu  quo.  The  mere 
probability  that  the  notes  would  be  valid  in  their  hands,  was 
inducement  enough  to  seize  on  them  with  avidity ;  it  might  be  the 


176  What  Constitutes  Consideration 

means  of  rescuing  something  from  the  shipwreck.  Very  different 
is  the  case  of  a  holder  for  value  paid ;  he  makes  the  advance  on 
the  credit  of  the  paper ;  if  that  fails,  his  loss  is  certain.  But  it  has 
been  urged,  that  if  the  appellants  had  not  reposed  themselves  on 
the  rule  now  contended  for,  they  might  have  obtained  other  secur- 
ity, and,  consequently,  they  are  prejudiced  by  the  decree.  This 
argument  cannot  be  listened  to ;  it  only  proves  that  the  appellants 
may  sustain  an  injury  in  consequence  of  mistake  as  to  the  rule 
of  law.  With  this  the  court  has  no  concern.  The  true  question 
is,  Have  they  paid  value  for  the  notes,  or  made  any  new  engage- 
ments as  the  consideration  of  the  transfer  ?  This  is  not  pretended. 
I  am,  therefore,  of  opinion,  that  the  decree  of  his  honor  the  chan- 
cellor ought  to  be  affirmed.  j,  oft^Ow.- 
Platt,  J.,  concurred.                                        ^^        * 

Decree  of  affirmance. 


6 


Swift  v.  Tyson  {1842),  16  Pet.  (41  U.  S.),  1. 

On  a  certificate  of  division  from  the  Circuit  Court  of  the 
United  States  for  the  Southern  District  of  New  York. 

This  action  was  instituted  in  the  Circuit  Court  upon  a  bill 
of  exchange,  dated  at  Portland,  in  the  State  of  Maine,  on  the 
first  day  of  May,  1836,  for  one  thousand  five  hundred  and  thirty- 
six  dollars  and  thirty  cents,  payable  six  months  after  date,  drawn 
by  Nathaniel  Norton,  and  Jairus  S.  Keith,  upon  and  accepted  by 
the  defendant,  the  bill  having  been  drawn  to  the  order  of  Nathan- 
iel Norton,  and  by  him  endorsed  to  the  plaintiff.  The  principal 
and  interest  on  the  bill,  up  to  the  time  of  trial,  amounted  to  one 
thousand  eight  hundred  and  sixty-two  dollars  and  six  cents.  The 
defence  to  the  action  rested  on  the  answers  to  a  bill  of  discovery 
filed  by  the  defendant  against  the  plaintiff ;  by  which  it  appeared 
that  the  bill  had  been  received  by  him  from  Nathaniel  Norton, 
with  another  draft  of  the  same  amount  in  payment  of  a  protested 
note  drawn  by  Norton  and  Keith,  and  which  had  been  paid  by 
him  to  the  Maine  Bank.  When  the  draft  was  received  by  the 
plaintiff,  it  had  been  accepted  by  the  defendant,  who  resided  in 
New  York.  The  plaintiff  had  no  knowledge  of  the  consideration 
which  had  been  received  for  the  acceptance,  and  had  no  other 
transaction  with  the  defendant.  He  had  received  the  drafts  and 
acceptances  in  payment  of  the  protested  note,  with  a  full  belief 
that  the  same  were  justly  due,  according  to  their  tenor ;  and  he 
had  no  other  security  for  the  payment  of  the  protested  note  except 


Swift  v.  Tvson  177 

the  drafts,  nor  had  he  any  knowledge  of  any  contract  or  dealing 
between  the  defendant  and  Norton,  out  of  which  the  said  draft 
arose. 

The  defendant  then  offered  to  prove  that  the  bill  of  exchange 
was  accepted  by  him  as  part  consideration  for  the  purchase  of 
certain  lands  in  the  State  of  Maine,  of  which  Keith  and  Norton, 
the  drawers  of  the  bill,  represented  themselves  to  be  the  owners, 
and  represented  them  to  be  of  great  value,  made  certain  estimates 
of  them  which  were  warranted  by  them  to  be  correct,  and  also 
contracted  to  convey  a  good  title  to  the  land ;  all  of  which  repre- 
sentations were  in  every  respect  fraudulent  and  false ;  and  that 
said  Keith  and  Norton  have  never  been  able  to  make  a  title  to 
the  lands:  whereupon  the  plaintiff,  by  his  counsel,  objected  to  the 
admission  of  said  testimony,  or  any  testimony,  as  against  the 
plaintiff,  impeaching  or  showing  the  failure  of  the  consideration 
on  which  said  bill  was  accepted,  under  the  facts  aforesaid  admit- 
ted by  the  defendant,  and  those  proven  by  him,  by  reading  said 
answers  in  equity  of  the  plaintiff  in  evidence.  And  the  judges 
of  the  Court  divided  in  opinion  on  the  point  or  question  of  law, 
whether,  under  the  facts  last  mentioned,  the  defendant  was 
entitled  to  the  same  defence  to  the  action  as  if  the  suit  was 
between  the  original  parties  to  the  bill,  that  is  to  say,  the  said 
Norton,  or  the  said  Norton  and  Keith,  and  the  defendant.  And 
whether  the  evidence  so  offered  in  defence  and  objected  to  was 
admissible  as  against  the  plaintiffs  in  this  action. 

And  thereupon  the  said  point  or  question  of  law  was,  at  the 
request  of  the  counsel  for  the  said  plaintiff,  stated  as  above 
under  the  direction  of  the  judges  of  this  Court,  to  be  certified 
under  the  seal  of  this  Court  to  the  Supreme  Court  of  the  United 
States,  at  the  next  session  thereof  to  be  held  thereafter;  to  be 
finally  decided  by  the  said  last  mentioned  Court. 

Fessenden,  for  the  plaintiff. 
Dana,  for  the  defendant. 

Story,  J.,  delivered  the  opinion  of  the  court. 

This  cause  comes  before  us  from  the  Circuit  Court  of  the 
southern  district  of  New  York,  upon  a  certificate  of  division  of 
the  judges  of  that  Court. 

The  action  was  brought  by  the  plaintiff,  Swift,  as  endorsee, 
against  the  defendant,  Tyson,  as  acceptor,  upon  a  bill  of  exchange 
dated  at  Portland,  Maine,  on  the  first  day  of  May,  1836,  for  the 
sum  of  one  thousand  five  hundred  and  forty  dollars,  thirty  cents, 
payable  six  months  after  date  and  grace,  drawn  by  one  Nathaniel 


178  What  Constitutes  Consideration 

Norton  and  one  Jairus  S.  Keith  upon  and  accepted  by  Tyson,  at 
the  city  of  New  York,  in  favour  of  the  order  of  Nathaniel  Norton, 
and  by  Norton  endorsed  to  the  plaintiff.  The  bill  was  dishon- 
oured at  maturity. 

At  the  trial  the  acceptance  and  endorsement  of  the  bill  were 
admitted,  and  the  plaintiff  there  rested  his  case.  The  defendant 
then  introduced  in  evidence  the  answer  of  Swift  to  a  bill  of  dis- 
covery, by  which  it  appeared  that  Swift  took  the  bill  before  it 
became  due,  in  payment  of  a  promissory  note  due  to  him  by 
Norton  and  Keith ;  that  he  understood  that  the  bill  was  accepted 
in  part  payment  of  some  lands  sold  by  Norton  to  a  company  in 
New  York ;  that  Swift  was  a  bona  fide  holder  of  the  bill,  not 
having  any  notice  of  anything  in  the  sale  or  title  to  the  lands,  or 
otherwise,  impeaching  the  transaction,  and  with  the  full  belief 
that  the  bill  was  justly  due.  The  particular  circumstances  are 
fully  set  forth  in  the  answer  in  the  record ;  but  it  does  not  seem 
necessary  farther  to  state  them.  The  defendant  then  offered  to 
prove,  that  the  bill  was  accepted  by  the  defendant  as  part  con- 
sideration for  the  purchase  of  certain  lands  in  the  State  of  Maine, 
which  Norton  and  Keith  represented  themselves  to  be  the  owners 
of,  and  also  represented  to  be  of  great  value,  and  contracted  to 
convey  a  good  title  thereto;  and  that  the  representations  were  in 
every  respect  fraudulent  and  false,  and  Norton  and  Keith  had 
no  title  to  the  lands,  and  that  the  same  were  of  little  or  no  value. 
The  plaintiff  objected  to  the  admission  of  such  testimony,  or  of 
any  testimony,  as  against  him,  impeaching  or  showing  a  failure 
of  the  consideration,  on  which  the  bill  was  accepted,  under  the 
facts  admitted  by  the  defendant,  and  those  proved  by  him,  by 
reading  the  answer  of  the  plaintiff  to  the  bill  of  discovery.  The 
judges  of  the  Circuit  Court  thereupon  divided  in  opinion  upon 
the  following  point  or  question  of  law :  Whether,  under  the 
facts  last  mentioned,  the  defendant  was  entitled  to  the  same 
defence  to  the  action  as  if  the  suit  was  between  the  original 
parties  to  the  bill,  that  is  to  say,  Norton,  or  Norton  and  Keith, 
and  the  defendant ;  and  whether  the  evidence  so  offered  was 
admissible  as  against  the  plaintiff  in  the  action.  And  this  is  the 
question  certified  to  us  for  our  decision. 

There  is  no  doubt,  that  a  bona  fide  holder  of  a  negotiable 
instrument  for  a  valuable  consideration,  without  any  notice  of 
W*>  facts  which  impeach  its  validity  as  between  the  antecedent  parties. 
if  he  takes  it  under  an  endorsement  made  before  the  same 
becomes  due,  holds  the  title  unaffected  by  these  facts,  and  may 
recover  thereon,  although  as  between  the  antecedent  parties  the 


Swift  v.  Tyson  179 

transaction  may  be  without  any  legal  validity.  This  is  a  doctrine 
so  long  and  so  well  established,  and  so  essential  to  the  security 
of  negotiable  paper,  that  it  is  laid  up  among  the  fundamentals  of 
the  law,  and  requires  no  authority  or  reasoning  to  be  now  brought 
in  its  support.  As  little  doubt  is  there,  that  _the_hqlder_of  _any 
negotiable  paper,  before  it  is  due,  is  not  bound  to  prove  that  he  is  . 
a  bona  fide  holder  for  a  valuable  consideration,  without  notice ; 
for  the  law  will  presume  that,  in  the  absence  of  all  rebutting 
proofs,  and  therefore  it  is  incumbent  upon  the  defendant  to  estab- 
lish by  way  of  defence  satisfactory  proofs  of  the  contrary,  and 
thus  to  overcome  the  prima  facie  title  of  the  plaintiff. 

In  the  present  case,  the  plaintiff  is  a  bona  fide  holder  without 
notice,  for  what  the  law  deems  a  good  and  valid  consideration, 
that  is,  for  a  pre-existing  debt ;  and  the  only  real  question  in  the 
cause  _ig,  whether,  under  the  circumstances  of  the  present  case, 
such^  a  pre-existing  debt  constitutes  a  valuable  consideration  in 
the  sense  of  the  general  rule  applicable  to  negotiable~lnstru- 
ments.  We  say,  under  the  circumstances  of  the  present  case,  for 
the  acceptance  having  been  made  in  New  York,  the  argument  on  • 
behalf  of  the  defendant  is,  that  the  contract  is  to  be  treated  as  a 
New  York  contract,  and  therefore  to  be  governed  by  the  laws  of 
New  York,  as  expounded  by  its  courts,  as  well  as  upon  general 
principles,  as  by  the  express  provisions  of  the  thirty-fourth  sec- 
tion of  the  judiciary  act  of  1789,  ch.  20.  And  then  it  is  further 
contended,  that  by  the  law  of  New  York,  as  thus  expounded  by 
its  courts,  a  pre-existing  debt  does  not  constitute,  in  the  sense  of  , 
the  general  rule,  a  valuable  consideration  applicable  to  negotiable 
instruments. 

In  the  first  place,  then,  let  us  examine  into  the  decisions  of 
the  courts  of  New  York  upon  this  subject.  In  the  earliest  case, 
Warren  v.  Lynch,  5  Johns.  R.  289,  the  Supreme  Court  of  New 
York  appear  to  have  held,  that  a  pre-existing  debt  was  a  sufficient 
consideration  to  entitle  a  bona  fide  holder  without  notice  to 
recover  the  amount  of  a  note  endorsed  to  him,  which  might  not, 
as  between  the  original  parties,  be  valid.  The  same  doctrine  was 
affirmed  by  Mr.  Chancellor  Kent  in  Bay  v.  Coddington,  5  Johns. 
Chan.  Rep.  54.  Upon  that  occasion  he  said,  that  negotiable  paper 
can  be  assigned  or  transferred  by  an  agent  or  factor  or  by  any 
other  person,  fraudulently,  so  as  to  bind  the  true  owner  as  against 
the  holder,  provided  it  be  taken  in  the  usual  course  of  trade,  and  •" 
for  a  fair  and  valuable  consideration  without  notice  of  the  fraud. 
But  he  added,  that  the  holders  in  that  case  were  not  entitled  to 
the  benefit  of  the  rule,  because  it  was  not  negotiated  to  them  in 


180  What  Constitutes  Consideration 

the  usual  course  of  business  or  trade,  nor  in  payment  of  any 
antecedent  and  existing  debt,  nor  for  cash,  or  property  advanced, 
debt  created,  or  responsibility  incurred,  on  the  strength  and  credit 
of  the  notes ;  thus  directly  affirming,  that  a  pre-existing  debt  was_ 
a   fair  and  valuable  consideration  within  the  protection  of  the 
general  rule.    And  he  has  since  affirmed  the  same  doctrine,  upon 
a,  full  review  of  it,  in  his  Commentaries,  3  Kent.  Comm.,  sec.  44, 
p.  81.    The  decision  in  the  case  of  Bay  v.  Coddington  was  after- 
wards affirmed  in  the  Court  of  Errors,  20  Johns.  R.  637,  and  the 
general  reasoning  of  the  chancellor  was  fully  sustained.     There 
were  indeed  peculiar  circumstances  in  that  case,  which  the  Court 
seem  to  have  considered  as  entitling  it  to  be  treated  as  an  excep- 
tion to  the  general   rule,   upon  the  ground   either  because  the 
receipt   of   the   notes   was   under   suspicious    circumstances,   the 
transfer  having  been  made  after  the  known  insolvency  of  the 
endorser,  or  because  the  holder  had  received  it  as  a  mere  security 
for  contingent  responsibilities,  with  which  the  holders  had  not 
then  become  charged.    There  was,  however,  a  considerable  diver- 
sity of  opinion  among  the  members  of  the  court  upon  that  occa- 
sion, several  of  them  holding  that  the  decree  ought  to  be  reversed, 
others  affirming  that  a  pre-existing  debt  was  a  valuable  consid- 
eration, sufficient  to  protect  the  holders,  and  others  again  insist- 
ing, that  a  pre-existent  debt  was  not  sufficient.    From  that  period, 
however,  for  a  series  of  years,  it  seems  to  have  been_held  by  the 
Supreme  Court  of  .the  state,  that  a  pre-existing  debt  was  not  a 
sufficient  consideration  to  shut  out  the_eguities  of  the,  original 
par^es^fa^IFoTthe  holders.    Bui-HQ_gase  to. that  effect  has 
ever  been  decided  in  the  Court  of  Errors.     The  eases  cited  at  the 
bar,  ancTespecially  Roosa  v.  Brother  son,  10  Wend.  R.  85 ;  The 
Ontario  Bank  v.  Worthington,  12  Wend.  R.  593;  and  Payne  v. 
Cutler,  13  Wend.  R.  605,  are  directly  in  point.     But  the  more 
recent  cases,  The  Bank  of  Salina  v.  Babcock,  21  Wend.  R.  490, 
and  The  Bank  of  Sandusky  v.  Scoinlle,  24  Wend.  R.  115,  have 
greatly  shaken,  if  they  have  not  entirely  overthrown  those  deci- 
sions, and  seem  to  have  brought  back  the  doctrine  to  that  promul- 
gated in  the  earliest  cases.    So  that,  to  say  the  least  of  it,  it  admits 
of  serious  doubt,  whether  any  doctrine  upon  this  question  can  at 
the  present  time  be  treated  as  finally  established ;  and  it  is  certain, 
that   the   Court   of   Errors    have  .noL.JLrJ>nounced    any    positive 
opinion  upon  it. 
•  "     But,  admitting  the  doctrine  to  be  fully  settled  in  New  York, 
it  remains  to  be  considered,  whether  it  is  obligatory  upon  this 
Court,  if  it  differs  from  the  principles  established  in  the  general. 


Swift  v.  Tvson  181 

commercial  law.  It  is  observable  that  the  courts  of  New  York 
do  not  found  their  decisions  upon  this  point  upon  any  local  statute, 
or  positive,  fixed,  or  ancient  local  usage ;  but  they  deduce  the  doc- 
trine from  the  general  principles  of  commercial  law.  It  is,  how- 
ever, contended,  that  the  thirty-fourth  section  of  the  judiciary 
act  of  1789,  ch.  20,  furnishes  a  rule  obligatory  upon  this  Court  to 
follow  the  decisions  of  the  state  tribunals  in  all  cases  to  which 
they  apply.  That  section  provides  "that  the  laws  of  the  several-^ 
states,  except  where  the  Constitution,  treaties,  or  statutes  of  the  y 
United  States  shall  otherwise  require  or  provide,  shall  be 
regarded  as  rules  of  decision  in  trials  at  common  law  in  the  courts  ■ 
of  the  United  States,  in  cases  where  they  apply."  In  order  to^ 
maintain  the  argument,  it  is  essential,  therefore,  to  hold,  that  the 
word  "laws,"  in  this  section,  includes  within  the  scope  of  its 
meaning  the  decisions  of  the  local  tribunals.  In_the_ordinary  use 
of  languagej^jvill  hardly__be_contended  that  the  decisions  _of 
courts  constitute  laws.  They  are,  aFmost,  only  evidence  ofwhaF 
the  laws  are;  and  are  not  of  themselves  laws.  They  are  often 
re-examined,  reversed,  and  qualified  by  the  courts  themselves, 
whenever  they  are  found  to  be  either  defective,  or  ill-founded,  or 
otherwise  incorrect.  The  laws  of  a  state  are  more  usually  under- 
stood to  mean  the  rules  and  enactments  promulgated  by  the 
legislative  authority  thereof,  or  long  established  local  customs 
having  the  force  of  laws.  In  all  the  various  cases  which  have 
hitherto  come  before  us  for  decision,  this  Court  have  uniformly 
supposed,  that  the  true  interpretation  of  the  thirty-fourth  section 
limited  its  application  to  state  laws  strictly  local,  that  is  to  say,  to 
the  positive  statutes  of  the  state,  and  the  construction  thereof 
adopted  by  the  local  tribunals,  and  to  rights  and  titles  to  things 
having  a  permanent  locality,  such  as  the  rights  and  titles  to  real 
estate,  and  other  matters  immovable  and  intraterritorial  in  their 
nature  and  character.  It  never  has  been  supposed  by  us,  that 
the  section  did  apply,  or  was  designed  to  apply,  to  questions  of  a 
more  general  nature,  not  at  all  dependent  upon  local  statutes  or 
local  usages  of  a  fixed  and  permanent  operation,  as,  for  example, 
to  the  construction  of  ordinary  contracts  or  other  written  instru- 
ments, and  especially  to  questions  of  general  commercial  law, 
where  the  state  tribunals  are  called  upon  to  perform  the  like 
functions  as  ourselves,  that  is,  to  ascertain  upon  general  reason- 
ing and  legal  analogies,  what  is  the  true  exposition  of  the  contract 
or  instrument,  or  what  is  the  just  rule  furnished  by  the  principles 
of  commercial  law  to  govern  the  case.  And  we  have  not  now 
the  slightest  difficulty  in  holding,  that  this  section,  upon  its  true 


182  What  Constitutes  Consideration 

intendment  and  construction,  is_strictly  limited  to  local  statutes 
and  local  usages  of  the  character  before  stated^  and  does  not 
extend  to  contracts  and  other  instruments  of  a  commercial  nature^ 
the  true  interpretation  and  effect  whereof  are  to  be  sought,  not 
in  the  decisions  of  the  local  tribunals,  but  in  the  general  principles 
and  doctrines  of  commercial  jurisprudence.  Undoubtedly,  the 
decisions  of  the  local  tribunals  upon  such  subjects  are  entitled  to, 
and  will  receive,  the  most  deliberate  attention  and  respect  of  this 
Court;  but  they  cannot  furnish  positive  rules,  or  conclusive 
authority,  by  which  our  own  judgments  are  to  be  bound  up  and 
governed.  The  law  respecting  negotiable  instruments  may  be 
truly  declared  in  the  language  of  Cicero,  adopted  by  Lord  Mans- 
field in  Luke  v.  Lyde,  2  Burr.  R.  883,  887,  to  be  in  a  great  meas- 
ure, not  the  law-  of  a  single  country  only,  but  of  the  commercial 
world.  Non  erit  alia  lex  Romcc,  alia  Athenis,  alia  nunc,  alia 
posthac,  sed  ct  apud  omnes  gentes,  et  omni  tempore,  una  eadem- 
que  lex  obtencbit. 

It  becomes  necessary  for  us,  therefore,  upon  the  present  occa- 
sion to  express  our  own  opinion  of  the  true  result  of  the  commer- 
cial  law  upon  the  question  now  before  us.     And  we  have  no 
hesitationin  saying,  thal_a_  pre-existing  debt  does  constitute  a . 
yaluabTe~consideration  in  the~  sense  of  the  general  rule  already" 
stjLtegZailapp  instrummtsi     Assuming  it  to 

be  true,  (which,  however,  may  well  admit  of  some  doubt  from 
the  generality  of  the  language,)  that  the  holder  of  _a  negotiable 
mstrumenX  is  unaffected  with-. the  equities  between  the  antece- 
dentjpa^tie^-jrfjyhirii  he  has  no  notirp,  only  where  he  receives  it  . 
in  the  usual  course  of  trade  and  business  for  a  valuable  consid- 
eration, before  it  becomes  due:  we  are  prepared  to  say,  that 
receiving  it  in  payment  of  or  as  security  for  a  pre-existing  debt, 
is  according  to  the  known  usual  course  of  trade  and  business. 
And  why  upon  principle  should  not  a  pre-existing  debt  be  deemed 
such  a  valuable  consideration?  It  is  for  the  benefit  and  conve- 
nience of  the  commercial  world  to  give  as  wide  an  extent  as 
practicable  to  the  credit  and  circulation  of  negotiable  paper,  that 
it  may  pass  not  only  as  security  for  new  purchases  and  advances, 
made  upon  the  transfer  thereof,  but  also  in  payment  of  and  as 
security  for  pre-existing  debts.  The  creditor  is  thereby  enabled 
to  realize  or  to  secure  his  debt,  and  thus  may  safely  give  a  pro- 
longed credit,  or  forbear  from  taking  any  legal  steps  to  enforce 
his  rights.  The  debtor  also  has  the  advantage  of  making  his 
negotiable  securities  of  equivalent  value  to  cash.  But  establish 
the  opposite  conclusion,  that  negotiable  paper  cannot  be  applied 


Swift  v.  Tyson 


183 


in  payment  of  or  as  security  for  pre-existing  debts,  without  letting 
in  all  the  equities  between  the  original  and  antecedent  parties, 
and  the  value  and  circulation  of  such  securities  must  be  essentially  . 
diminished,  and  the  debtor  driven  to  the  embarrassment  of 
making  a  sale  thereof,  often  at  a  ruinous  discount,  to  some  third 
person,  and  then  by  circuity  to  apply  the  proceeds  to  the  payment 
of  his  debts.  What,  indeed,  upon  such  a  doctrine  would  become 
of  that  large  class  of  cases,  where  new  notes  are  given  by  the 
same  or  by  other  parties,  by  way  of  renewal  or  security  to  banks, 
in  lieu  of  old  securities  discounted  by  them,  which  have  arrived 
at  maturity?  Probably  more  than  one-half  of  all  bank  transac- 
tions in  our  country,  as  well  as  those  of  other  countries,  are  of 
this  nature.  The  doctrine  would  strike_a  fatal  blow  at  all  dis- 
counts_  qf_  negotiable  securities  for  pre-existing  debts.. 

This  question  has  been  several  times  before  this  Court,  and 
it  has  been  uniformly  held,  that  it  makes  no  difference  whatso- 
ever as  to  the  rights  of  the  holder,  whether  the  debt  for  which  the 
negotiable  instrument  is  transferred  to  him  is  a  pre-existing  debt, 
or  is  contracted  at  the  time  of  the  transfer.  In  each  case  he 
equally  gives  credit  to  the  instrument.  The  cases  of  Coolidgc  v. 
Payson,  2  Wheaton,  R.  66,  70,  73,  and  Townsley  v.  Sumrall,  2 
Peters,  R.  170,  182,  are  directly  in  point. 

In  England  the  same  doctrine  has  been  uniformly  acted 
upon.  As  long  ago  as  the  case  of  Pillans  and  Rose  v.  Van  Mcirop 
and  Hopkins,  3  Burr.  1664,  the  very  point  was  made  and  the 
objection  was  overruled.  That,  indeed,  was  a  case  of  far  more 
stringency  than  the  one  now  before  us ;  for  the  bill  of  exchange, 
there  drawn  in  discharge  of  a  pre-existing  debt,  was  held  to  bind 
the  party  as  acceptor,  upon  a  mere  promise  made  by  him  to  accept 
before  the  bill  was  actually  drawn.  Upon  that  occasion,  Lord 
Mansfield,  likening  the  case  to  that  of  a  letter  of  credit,  saidr  that 
a  letter_of_credit  may  be  given  for  money  already  advancedj_as_ 
well  as  for  money  to  be  advanced  in  future;  and  the  whole  court 
held  the  plaintiff  entitled  to  recover.  From  that  period  downward 
there  is  not  a  single  case  to  be  found  in  England  in  which  it  has 
ever  been  held  by  the  court,  that  a  pre-existing  debt  was  not  a 
valuable  consideration,  sufficient  to  protect  the  holder,  within  the 
meaning  of  the  general  rule,  although  incidental  dicta  have  been 
sometimes  relied  on  to  establish  the  contrary,  such  as  the  dictum 
of  Lord  Chief  Justice  Abbott  in  Smith  v.  De  Witt,  6  Dowl.  & 
Ryland,  120,  and  De  la  Chaumcttc  v.  The  Bank  of  England,  9 
Barn.  &  Cres.  209,  where,  however,  the  decision  turned  upon  very 
different  considerations. 


184  What  Constitutes  Consideration 

Mr.  Justice  Bayley,  in  his  valuable  work  on  bills  of  exchange 
and  promissory  notes,  lays  down  the  rule  in  the  most  general 
terms.  "The  want  of  consideration,"  says  he,  "in  toto  or  in  part^ 
cannot  be  insisted  on,  if  the  plaintiff  or  any  intermediate  party ^ 
between  him  and  the  defendant,  took  the  bill  or  note  bona  tide 
and  upon  a  valid  consideration/'  (Bayley  on  Bills,  p.  499,  500, 
5th  London  edition,  1830.)  It  is  observable  that  he  here  uses 
the  words  "valid  consideration,"  obviously  intending  to  make 
the  distinction,  that  it  is  not  intended  to  apply  solely  to  cases, 
where  a  present  consideration  for  advances  of  money  on  goods 
or  otherwise  takes  place  at  the  time  of  the  transfer  and  upon  the 
credit  thereof.  And  in  this  he  is  fully  borne  out  by  the  author- 
ities. They  go  farther,  and  establish,  that  a.  transfer  as  security 
for  past,  and  even  for  future  responsibilities,  will,  for  this  pur- 
pose, be  a  sufficient,  valid,  and  valuable  consideration  Thus,  in 
the  case  of  Bosanquet  v.  Dudman,  1  Starkie,  R.  1,  it  was  held  by 
Lord  Ellenborough,  that  if  a  banker  be  under  acceptances  to  an 
amount  beyond  the  cash  balance  in  his  hands,  every  bill  he  holds 
of  that  customer's,  bona  fide,  he  is  to  be  considered  as  holding  for 
value ;  and  it  makes  no  difference  though  he  hold  other  collateral 
securities,  more  than  sufficient  to  cover  the  excess  of  his  accept- 
ances. The  same  doctrine  was  affirmed  by  Lord  Eldon  in  Ex 
parte  Bloxham,  8  Ves.  531,  as  equally  applicable  to  past  and  to 
future  acceptances.  The  subsequent  cases  of  Haywood  v.  Wat- 
son, 4  Bing.  R'.  496,  and  Bramah  v.  Roberts,  1  Bing.  New  Ca. 
469,  and  Percival  v.  Brampton,  2  Cromp.  Mees.  &  Rose,  180,  are 
to  the  same  effect.  They  directly  establish  that  a  bona  tide  holder, 
t a k  i n  g  a  negotiable  note  in  payment  of  or  as  security  for  a  pre? 
existing  debt,  is  a  holder  for  a  valuable  consideration,  euiuled  trr 
protection  against  all  the  equities  between  the  antecedent  parties? 
And  these  are  the  latest  decisions,  which  our  researches  have 
enabled  us  to  ascertain  to  have  been  made  jri^  the  English  courts^ 
Upon  this  subject. 

In  the  American,  courts.,  so  far  as  we  have  been  able  to  trace 
the  decisions,  the  same  doctrine  seems  generally  but  not  univer- 
sally to  preyaij.  In  Brush  v.  Scribncr,  11  Conn.  R.  388,  the 
Supreme  Court  of  Connecticut,  after  an  elaborate  review  of  the 
English  and  New  York  adjudications,  held,  upon  general  prin- 
ciples of  commercial  law,  that  a  pre-existing  debt  was  a  valuable 
consideration,  sufficient  to  convey  a  valid  title  to  a  bona  fide " 
holder  against  all  the  antecedent  parties  to  a  negotiable  note. 
There  is  no  reason  to  doubt,  that  the  same  rule  has  been  adopted 
and  constantly  adhered  to  in  Massachusetts;  and  certainly  there 


Swift  v.  Tyson  185 

is  no  trace  to  be  found  to  the  contrary.  In  truth,  in  the  silence 
of  any  adjudications  upon  the  subject,  in  a  case  of  such  frequent 
and  almost  daily  occurrence  in  the  commercial  states,  it  may  fairly 
be  presumed,  that  whatever  constitutes  a  valid  and  valuable  con^ 
sideration  in  other  cases  of  contract  to  support  titles  of  the  most 
solemn  nature,  is  held  a  fortiori  to  be  sufficient  in  cases  of  nego- 
tiable instruments,  as  indispensable  to  the  security  of  holders,  and 
the  facility  and  safety  of  their  circulation.  Be  this  as  it  may,  we 
entertain  no  doubt,  that  a  bona  fide  holder,  for  a  pre-existing 
debt,  of  a  negotiable  instrument,  is  not  affected  by  any  equities/ 
between  the  antecedent  parties,  where  he  has  received  the  same 
before  it  became  due,  without  notice  of  any  such  equities.  We 
are  all,  therefore,  of  opinion,  that  the  question  on  this  point,  pro- 
pounded by  the  Circuit  Court  for  our  consideration,  ought  to  be 
answered  in  the  negative;  and  we  shall  accordingly  direct  it  so 
to  be  certified  to  the  Circuit  Court. 

Mr.  Justice  Catron  said : 

Upon  the  point  of  difference  between  the  judges  below,  X 
concur,  that  the  extinguishment  of  a  debt,  and  the  giving  a  post 
consideratiotL_such  as  the  record  presents,  will  protect  the  pur- 
■chaser_and  assignee  of  a  negotiable  note  from  the  infirmity  affect- 
ing "the  instrument  before  it  was  negotiated.  But  I  am  unwilling 
to  sanction  the  introduction  into  the  opinion  of  this  court,  a  doc- 
trine aside  from  the  case  made  by  the  record,  or  argued  by  the 
counsel,  assuming  to  maintain,  that  a  negotiable  note  or  bill 
pledged  as_collateral  security  for  a  previous  debt,  is  taken  by  the 
creditor  in  the  due  course  of  trade ;  and  that  he  stands  on  the  foot 
of  him  who  purchases  in  the  market  for  money,  or  takes  the 
Instrument  in  extinguishment  of  a  previous  debt.  State  courts  of 
high  authority  on  commercial  questions  have  held  otherwise ; 
and  that  they  will  yield  to  a  mere  expression  of  opinion  of  this 
court,  or  change  their  course  of  decision  in  conformity  to  the 
recent  English  cases  referred  to  in  the  principal  opinion,  is 
improbable:  whereas,  if  the  question  was  permitted  to  rest  until 
it  fairly  arose,  the  decision  of  it  either  way  by  this  court,  prob- 
ably, would,  and  I  think  ought  to  settle  it.  As  such  a  result  is  not 
to  be  expected  from  the  opinion  in  this  cause,  I  am  unwilling  to 
embarrass  myself  with  so  much  of  it  as  treats  of  negotiable  instru- 
ments taken  as  a  pledge.  I  never  heard  this  question  spoken  of 
as  belonging  to  the  case,  until  the  principal  opinion  was  presented 
last  evening ;  and  therefore  I  am  not  prepared  to  give  any  opinion, 
even  was  it  called  for  by  the  record. 


186  What  Constitutes  Consideration 

This  cause  came  on  to  be  heard  on  the  transcript  of  the 
record  from  the  Circuit  Court  of  the  United  States,  for  the  south- 
ern district  of  New  York,  and  on  the  point  and  question  on  which 
the  judges  of  the  said  Circuit  Court  were,  opposed  in  opinion,  and 
which  were  certified  to  this  court  for  its  opinion,  agreeably  to  the 
act  of  Congress  in  such  case  made  and  provided,  and  was  argued 
by  counsel.  On  consideration  whereof,  it  is  the  opinion  of  this 
court,  that  the  defendant  was  not,  under  the  facts  stated,  entitled 
to  the  same  defence  to  the  action  as  if  the  suit  was  between  the 
original  parties  to  the  bill ;  that  is  to  say,  the  said  Norton,  or  the 
said  Norton  and  Keith  and  the  defendant:  and  that  the  evidence 
offered  in  defence  and  objected  to,  was  not  admissible  as  against 
the  plaintiff  in  this  action.  Whereupon  it  is  now  here  ordered 
and  adjudged  by  this  court,  that  an  answer  in  the  negative  be 
certified  to  the  said  Circuit  Court. 


-V" 


V  Sutherland  v.  Mead  et  al.  (1903),  80  App.  Div.  (N.  Y.)  103,  80 

N.  Y.  Supp.  504. 

Appeal  from  Special  Term,  New  York  County. 

Action  by  George  R.  Sutherland  against  Charles  H.  Mead 
and  Thomas  Taft,  impleaded.  From  an  order  denying  a  motion 
to  vacate  and  set  aside  the  judgment,  or,  in  the  alternative,  to 
modify  it  by  reducing  it  to  $150,  with  interest,  defendants  Mead 
and  Taft  appeal.     Reversed. 

Argued  before  Van  Brunt,  P.  J.,  and  Hatch,  McLaugh- 
lin, O'Brien,  and  Ingraham,  JJ. 

A.  H.  F.  Sceger,  for  appellants. 
Edward  Hassett,  for  respondent. 

Hatch,  J.  This  action  was  brought  to  recover  upon  a  prom- 
issory note  made  by  the  defendant  Deshong,  upon  which  the 
appellants  were  accommodation  indorsers.  It  appeared  upon  the 
hearing  of  the  motion  that  the  defendant  Palleske  was  indebted 
to  the  appellants  upon  a  promissory  note  for  the  sum  of  $1,000; 
that  as  such  note  was  about  falling  due,  and  on  the  15th  day  of 
April,  1902,  Palleske  requested  the  appellants  to  accept  in  pay- 
ment of  such  note  the  promissory  note  executed  by  Deshong,  set 
forth  in  the  complaint  in  the  action ;  that  they  refused  so  to  accept 
the  same  unless  Palleske  could  procure  it  to  be  discounted,  and 
would  deliver  the  proceeds  thereof  to  the  appellants,  and  for  such 


Sutherland  v.  Mead  et  al.  187 

purpose  the  appellants  indorsed  said  note  in  their  firm  name,  and 
the  defendant  Palleske  took  the  same,  and  agreed  to  return  the 
proceeds  thereof  to  the  appellants.  Instead  of  discounting  the 
note,  Palleske  transferred  the  same  to  the  plaintiff  in  the  action, 
who  paid  thereon  the  sum  of  $150  cash,  and,  as  further  con- 
sideration, took  and  held  the  same  as  collateral  security  for  an 
indebtedness  then  due  and  owing  by  Palleske  to  the  plaintiff  in 
a  sum  exceeding  $3,000,  the  whole  of  which  still  remains  due  and 
unpaid.  This  action  was  brought  by  the  plaintiff  to  enforce  the 
note.  All  of  the  defendants  made  default  in  answering.  Judg- 
ment was  thereupon  entered  by  the  plaintiff  for  the  full  amount 
secured  to  be  paid  by  the  note,  with  interest.  Thereafter  the 
accommodation  indorsers,  the  appellants  herein,  made  a  motion 
to  open  the  default,  and  for  leave  to  serve  an  answer.  The  court 
denied  such  motion  upon  the  ground  that  the  answer  which  accom- 
panied the  motion  papers,  and  which  was  proposed  to  be  served 
as  a  defense  to  the  note,  was  insufficient  for  such  purpose,  in  that 
it  failed  to  aver  the  fraudulent  diversion  of  the  note  in  suit,  and 
for  this  reason  the  motion  was  denied.  It  is  clear  that  the  court 
made  a  correct  disposition  of  such  motion,  and  placed  the  denial 
upon  a  proper  ground.  There  was  no  statement  in  the  answer 
which  raised  any  issue  of  a  fraudulent  diversion.  Consequently 
the  plaintiff  would  have  been  entitled  to  judgment  thereunder. 
The  fraudulent  diversion  of  the  note  constituted  an  affirmative 
defense,  and  the_jefendants^  in  order  to  avail  themselves  of  it, 
were  required  to  plead  the  same.  (Met.  Nat.  Bank  v.  Loyd,  90 
N.  Y.  530 ;  Grant  v.  Walsh,  145  N.  Y.  502,  40  N.  E.  209,  45  Am. 
St.  Rep.  626.)  Thereupon,  without  obtaining  leave  so  to  do,  the 
appellants  made  a  motion  to  set  aside  the  judgment,  or,  in  the 
alternative,  to  modify  the  same  by  reducing  the  recovery  upon 
the  note  in  suit  to  the  sum  of  $150,  with  interest  thereon  from  the 
day  of  its  date.  This  motion  was  based  upon  the  facts  and  cir- 
cumstances connected  with  the  delivery  of  the  note  to  Palleske, 
as  has  been  previously  stated,  and  also  upon  an  affidavit  made  by 
the  plaintiff  in  the  action  that  he  had  only  paid  to  Palleske  for 
the  note  $150  in  cash,  and  held  the  same  as  collateral  security 
for  the  payment  of  a  pre-existing  debt.  It  was  made  to  appear 
by  the  moving  papers  that  the  appellants  herein  were  ignorant  of 
the  consideration  paid  by  the  plaintiff  for  the  note  prior  to  the 
time  when  the  application  was  made  to  open  the  default,  when 
the  affidavit  was  read.  Upon  learning  these  facts,  the  appellants 
caused  an  answer  to  be  prepared,  setting  up  the  facts  and  circum- 
stances connected  with  the  delivery  of  the  note,  the  indorsement 


18b  What  Constitutes  Consideration 

by  the  appellants,  the  fraudulent  diversion  of  the  same  by  Pal- 
leske,  and  the  consideration  paid  therefor  by  the  plaintiff.  This 
motion,  upon  these  papers  coming  on  to  be  heard,  was  denied, 
and  from  the  order  entered  thereon,  this  appeal  is  taken. 

The  motion  to  vacate  or  reduce  the  judgment  was  an  entirely 
different  motion  from  the  one  made  to  open  the  default.  That 
was  based  solely  upon  the  fraudulent  diversion  of  the  note,  and 
upon  an  insufficient  answer  to  raise  such  question.  The  present 
facts  were  wholly  unknown  to  the  appellants  at  the  time  when 
the  motion  was  made.  The  present  motion  is  for  an  entirely  dif- 
ferent purpose,  viz.,  to  set  aside  the  judgment,  based  upon  a  state 
of  facts,  showing  that  the  plaintiff  was  only  entitled  to  enforce 
the  payment  of  the  note  to  the  extent  to  which  he  had  parted  with 
value  therefor,  and,  upon  the  conceded  facts,  he  was  not  entitled  „ 
to  the  judgment  which  had  been  entered,  unless  entitled  to  enforce 
the  note  for  the  full  amount.  These  facts  did  not  before  appear, 
and  were  unknown  to  the  moving  party.  This  application  was 
accompanied  by  a  verified  answer  setting  up  these  facts.  It  is 
evident,  therefore,  that  the  motion  was  entirely  different  from  the 
first  motion,  made  for  entirely  different  relief,  and  was  based 
upon  papers  which  fully  and  completely  set  forth  the  appellants' 
defense.  It  was  therefore  properly  made,  and  the  former  motion 
was  no  bar  to  the  court's  entertaining  the  same.  It  is  said,  how- 
ever, that  the  negotiable  instrument  law  has  changed  the  rule  in 
respect  to  what  constitutes  consideration  for  a  promissory  note; 
it  being  claimed  that  a  pre-existing  indebtedness  is  a  good  con- 
sideration, and  renders  the  holder  thereof  a  holder  for  value  of  a 
note  taken  as  security  therefor,  as  against  accommodation  indors- 
ers,  even  though  the  note  has  been  fraudulently  diverted  from  the 
purpose  for  which  it  was  given,  and  the  indorsers  have  received 
no  value.  Since  1822,  when  Coddington  v.  Bay,  20  Johns.  636, 
11  Am.  Dec.  342,  was  decided,  it  has  been  the  settled  law  of  this 
state  that  accommodation  makers  or  indorsers  of  negotiable  paper 
were  not  liable  to  a  holder  thereof,  where  the  same  had  been 
fraudulently  diverted  from  the  purpose  for  which  it  was  made,  ± 
or  the  indorsement  given,  and  the  holder  had  received  it  solely 
as  collateral  security  for  an  antecedent  debt.  (Comstock  v.  Hier, 
73  N.  Y.  269,  29  Am.  Rep.  142.)  In  other  words,' the  surety  has 
the  right  to  impose  such  liability  upon  his  obligation  as  he  sees 
fit,  and  he  is  not  to  be  made  liable  outside  of  the  terms  of  his 
engagement,  in  the  case  of  negotiable  paper,  except  for  the  benefit 
of  a  bona  fide  holder,  who  parted  with  value,  and  was  misled  to 
his  prejudice.     (United  States  Nat.  Bank  v.  Ewing,  131  N.  Y. 


Sutherland  v.  Mead  et  al.  189 

506,  30  N.  E.  501,  27  Am.  St.  Rep.  615.)  Whatever  may  have 
been  the  rule  with  respect  to  this  question  in  other  jurisdictions, 
it  has  been  the  law  of  this  state,  uniformly  enforced  during  this 
period  of  time,  and  still  is  the  law,  unless  the  negotiable  instru- 
ment law  has  changed  the  same.    Section  51  of  such  act  provides: 

"Value  is  any  consideration  sufficient  to  support  a  simple 
contract.  An  antecedent  or  pre-existing  debt  constitutes  value; 
and  is  deemed  such  whether  the  instrument  is  payable  on  demand 
or  at  a  future  time." 

Standing  alone,  this  provision  has  not  changed  the  existing 
law.  It  was  always  the  law  of  this  state  that  a  consideration  suffi- 
cient to  support  a  simple  contract  constituted  a  good  consideration 
for  the  instrument.  This  declaration,  therefore,  upon  this  sub- 
ject, added  nothing  whatever  to  the  law  as  it  existed  and  had 
existed  from  time  immemorial.  So,  also,  an  antecedent  or  pre- 
existing debt  constituted  value,  and  was  sufficient  in  considera- 
tion of  an  instrument,  either  negotiable  or  otherwise,  as  between 
the  parties  thereto.  Moreover,  it  was  always  the  law  that  the 
actual  payment  and  discharge  of  a  pre-existing  debt  constituted 
The  same  a  valuable  consideration  for  the  transfer. pj^ommercial  m 
paperTlmdshut  off  prior  equities  existing^againsLit.  Such  was 
the  TuTe^announced  in  Coddington  v.  Bay,  supra,  and  has  since 
been  enforced  by  the  courts  of  this  state.  (Mayer  v.  Heidclbach, 
123  N.  Y.  332,  25  N.  E.  416,  9  L.  R.  A.  850;  Spring  Brook  Chem- 
ical Co.  v.  Dunn,  39  App.  Div.  130,  57  N.  Y.  Supp.  100;  Blair 
v.  Hagemeyer,  26  App.  Div.  219,  49  N.  Y.  Supp.  965.)  There 
is  nothing  contained  in  this  enactment,  therefore,  which  has 
changed  the  rule  of  law  respecting  the  consideration  of  commer- 
cial paper,  as  it  had  previously  existed ;  and  the  language  of  the 
statute  is  quite  insufficient  to  annul  the  rule  which  has  obtained 
with  respect  to  the  fraudulent  diversion  of  commercial  paper,  as 
against  accommodation  indorsers  thereon.  Such  rule,  therefore, 
cannot  be  considered  as  changed,  unless  it  be  by  virtue  of  the 
other  provisions  of  the  statute,  showing  that  such  defense  is  cut 
off,  and  indicating  a  clear  intent  to  change  the  rule. 

Section  52  of  the  negotiable  instruments  law  defines  what 
constitutes  a  holder  for  value : 

"Where  value  has  at  any  time  been  given  for  the  instrument, 
the  holder  is  deemed  a  holder  for  value  in  respect  to  all  parties 
who  became  such  prior  to  that  time." 

And  by  section  55  an  accommodation  party  is  made  liable 
on  the  instrument  to  a  holder  for  value,  although  such  holder  at 
the  time  of  taking  the  instrument  knew  him  to  be  only  an  accom- 


190  What  Constitutes  Consideration 

modation  party.  Section  91  defines  a  holder  in  due  course  to  be 
a  person  who  has  taken  the  instrument  under  the  following  con- 
ditions : 

"(1)  That  it  is  complete  and  regular  upon  its  face;  (2)  that 
he  became  the  holder  of  it  before  it  was  overdue,  and  without 
notice  that  it  had  been  previously  dishonored,  if  such  was  the 
fact;  (3)  that  he  took  it  in  good  faith  and  for  value;  (4)  that 
at  the  time  it  was  negotiated  to  him  he  had  no  notice  of  any 
infirmity  in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  it." 

Section  94  defines  when  the  title  is  defective  in  the  person 
who  has  negotiated  the  instrument  as  follows : 

"When  he  obtained  the  instrument,  or  any  signature  thereto, 
by  fraud,  duress  or  force  and  fear,  or  other  unlawful  means,  or 
for  an  illegal  consideration,  or  when  he  negotiates  it  in  breach  of 
faith,  or  under  such  circumstances  as  amount  to  a  fraud." 

Section  95  provides  that  the  holder  must  have  "actual  knowl- 
edge of  the  infirmity  or  defect,  or  knowledge  of  such  facts  that 
his  action  in  taking  the  instrument  amounted  to  bad  faith."  By 
section  96  the  rights  of  a  holder  in  due  course  are  defined  to  be : 

"A  holder  in  due  course  holds  the  instrument  free  from  any 
defect  of  title  of  prior  parties  and  free  from  defenses  available 
to  prior  parties  among  themselves,  and  may  enforce  payment  of 
the  instrument  for  the  full  amount  thereof  against  all  parties 
liable  thereon." 

"By  section  98  it  is  provided : 

"Every  holder  is  deemed  prima  facie  to  be  a  holder  in  due 
course ;  but  when  it  is  shown  that  the  title  of  any  person  who 
has  negotiated  the  instrument  was  defective,  the  burden  is  on 
the  holder  to  prove  that  he  or  some  person  under  whom  he  claims 
acquired  the  title  as  a  holder  in  due  course." 

It  is  evident  from  these  provisions  that  the  Legislature  did 
not  intend  to  wipe  out  the  defenses  to  a  promissory  note  where 
the  same  had  been  procured  from  the  maker  by  fraud,  or  where 
the  indorsement  has  been  given  for  a  specific  purpose,  and  a  fraud- 
ulent diversion  of  the  paper  has  been  had.  If  the  holder  took 
the  same  with  notice  of  such  facts  or  circumstances  as  charged 
him  with  notice,  or  if  he  parted  with  no  value,  it  constitutes  a 
good  defense  to  such  note.  As  the  definition  of  value  for  a  prom- 
issory note  has  not  added  anything  to  the  law  upon  that  subject 
beyond  such  as  was  previously  recognized,  we  ought  not  to  con- 
clude that  the  Legislature  intended  to  change  the  rule  with  respect 
thereto,  nor  to  permit  frauds  to  be  perpetrated  thereunder.    When 


Sutherland  v.  Mead  et  al.  191 

the_ Legislature  defines jtde^cd^title^jt^  states  in  express  ^errns^ 
that  a  fraudulent  diversion  is  such.  All  of  these  sections  can  be 
harmonized,  in  their  entirety,  without  any  subtle  refinement  of 
reasoning,  by  construing  section  51  to  mean  that,  to  constitute 
an  antecedent  or  pre-existing  debt  a  valuable  consideration  in 
support  of  a  promissory  note  that  has  been  fraudulently  diverted, 
as  valid  in  the  hands  of  a  bona  fide  holder,  the  latter  must  have 
canceled,  and,  in  legal  effect,  paid  and  discharged,  the  antecedent 
or  pre-existing  debt.  By  still  holding  the  debt,  he  in  fact  parts 
with  no  value.  It  was  not  intended  thereby  that  where  a  debt 
cont inued  to  remain  in  existence,  and  enforceable  as  such,  and 
the  note  is  taken  as  collateral  security  for  its  payment,  such  debt. 
undischarged,  constitutes  a  valuable  consideration,  or  the  holder 
of  the  note  one  in  due  course,  as  against  the  accommodation 
maker  or  indorser  who  has  been  defrauded  by  the  negotiation 
of  the  instrument  We  are  not  to  impute  to  the  Legislature  an 
intent  to  change  a  rule  of  law  which  has  existed  in  uniform 
course  of  enforcement  for  over  three-quarters  of  a  century,  with- 
out a  clear  and  unequivocal  expression  so  to  do.  The  rules  of 
law  which  have  been  laid  down  in  England,  covering  such  ques- 
tion, or  the  reasons  assigned  for  a  different  rule  in  other  juris- 
dictions in  this  country,  do  not  furnish  controlling  reasons  for 
changing  the  law  of  this  state  so  as  to  bring  it  into  harmony  with 
such  views,  in  face  of  the  fact  that  in  the  commercial  center  of 
this  country  these  rules  have  been  applied  for  this  length  of  time 
without  damage  to  business  interests  or  harm  to  commercial 
usages,  and  during  its  operation  a  period  of  commercial  activity 
and  prosperity  has  existed,  heretofore  unknown  in  the  world's 
history.  We  may  take  judicial  notice  that  the  commission 
appointed  to  revise  and  codify  the  statutes  was  created,  in  the 
main,  to  codify  existing  laws,  and  not  make  new  rules ;  and  cer- 
tainly it  was  never  intended  that  settled  usages  in  respect  of  com- 
mercial paper,  founded  upon  decisions  covering  a  period  of  80 
years,  and  uniform  in  application,  should  be  overthrown  in  the 
construction  of  ambiguous  and  obscure  expressions  used  by  such 
body.  The  harmony  of  these  provisions  of  the  statute  is  in  no 
measure  disturbed  by  a  construction  which  causes  them  to  read 
that  an  antecedent  and  pre-existing  debt  must  he.  paid  and  dis- 
charged, in  order  to  constitute  the  holder  of  commercial  paper, 
_which  Tias  been  fraudulently  diverted,  a  bona  fide  holder,  and,  as^ 
such,  capable  of  enforcing  the  same,  as  against  the  accommoda- 
tion maker  or  indorser.  Merely  taking  such  paper  as  collateral 
security  for  the  payment  oT  a  pre-existing  or  antecedent,  " 


192  What  Constitutes  Consideration 

not  constitute  such  debt  value,  within  the  meaning  of  this  statute. 
This  matter  docs  not  seem  to  have  been  the  subject  of  discussroTT, 
beyond  that  had  at  Special  Term  in  the  case  of  Brewster  v. 
Shrader,  26  Misc.  Rep.  480,  57  N.  Y.  Supp.  606,  where  a  different 
rule  was  laid  down.  The  authority  cited  therefor  in  the  opinion 
is  contained  in  the  reviser's  note  by  the  author  of  the  law,  in 
which  it  is  stated  that  section  51  was  designed  to  change  the  rule 
in  Coddington  v.  Bay,  supra,  and  the  opinion  of  James  W.  Eaton, 
Esq.,  instructor  upon  the  law  of  bills  and  notes  in  the  Albany  Law 
School,  wherein  he  says,  in  his  published  edition  of  the  negotiable 
instruments  law,  in  referring  to  section  51,  "It  is  to  be  inferred 
that  the  above  statute  extends  the  New  York  rule  to  include 
instruments  given  merely  as  collateral  security."  We  are  not 
disposed  to  adopt  this  construction  of  the  law.  Settled  principles 
ought  not  to  be  overturned  by  imputing  a  legislative  intent  where 
the  language  upon  which  it  is  based  is  equivocal  in  expression, 
and  when  the  language  used  which  it  is  claimed  changes  the  rule 
may  be  naturally  harmonized  with  the  decisions  of  the  courts, 
which  have  settled  the  law  plainly  and  conclusively,  and  with 
respect  to  which  commercial  dealings  have  been  governed  in  this 
state  for  over  80  years.  But  even  though  we  should  be  wrong 
in  our  construction  of  this  statute,  nevertheless  it  does  not  change 
the  rule  of  law  to  be  applied  in  the  particular  case.  As  we  have 
seen  by  section  98,  above  quoted,  the  burden  is  placed  upon  the 
holder  of  every  promissory  note,  fraudulently  diverted,  to  show- 
that  he  acquired  title  thereto  as  a  holder  in  due  course.  Nothing 
which  appears  in  these  papers  tends  to  controvert  the  fact  that  the 
note  in  question  was  fraudulently  diverted.  The  proof  upon  such 
subject,  submitted  in  the  moving  papers,  is  clear  and  unequivocal. 
The  answer  sets  it  up  as  a  defense.  Before  the  plaintiff,  there- 
fore^  could  jrecoyer^Jie  must  shojw_that  he  acquired  the  paper  in 
due  course,  and  without  knowledge  of  any  infirmity  attending 
upon  Tt.  "Under  the  pleadings  an  issue  of  fact  upon  this  question 
may  be  presented,  and  these  appellants  are  not  to  be  made  to 
suffer  through  the  fraud  that  has  been  perpetrated  upon  them, 
if  the  plaintiff  had  notice  of  such  fact,  and  the  appellants  ought 
to  have  an  opportunity  to  be  heard  upon  this  subject.  The  doc- 
trine of  estoppel,  based  upon  the  certificate  that  the  note~was~a 
genuineTTjusiness  note,  given  for  value  received,  and  that  there 
was  no  defense  to  the  same,  either  in  law  or  in  equity,  does  not 
estop  the  appellants  from  interposing  the  defense  of  fraudulent 
diversion.  The  certificate  was  in  harmony  with  the  facts.  TT 
was  genuine  business  paper,  executed  for  a  particular  purpose, 


Hoffman  &  Co.  v.  Bank  of  Milwaukee  193 

and,  in  the  hands  of  a  holder  in  due  course,  may  be  enforced,    hi 
prderjo  constitute  an  estoppel  in  pais,  it  must  appear  that  the  act 
which  concludes  the  party  was  expressly  designed  to  influence 
the  conduct  of  anotherTand  did  so  influence  him,  and  when  a 
denial  of  the  act  will  operate  to  the  injury  of  the  holder  {Payne  v. 
Burnham,  62  N7Y.  69.)     Such  is  the  doctrine  of  the  cases  cited 
by  the  respondent.     They  are  without  application  in  the  present 
case,  for  the  reason  that  the  certificate  can  add  nothing  to  the 
rights  of  the  present  holder  of  the  note.     If  the  note  had  been  Yyt^A,  <-^rv/^ 
delivered  to  him  without  consideration,  he  could  not  have  enforced    ,      $     __ 
it  against  these  accommodation  indorsers,  as  he  would  not  have  '^vXA- 
been  misled  or  injured  by  the  certificate  which  wras  given.     To  t**0-   ^7  x 
the  extent  that  he  parted  with  value,  he  is  entitled  to  enforce  the  o^^-j^-  ^ 
note,  with  or  without  the  certificate.     In  holding  it  as  collateral  ^^^^J*^. 
security  for  the  payment  of  his  pre-existing  debt,  the  certificate    ^1^^^    «<- 
in  no  wise  prejudices  him,  as  he  has  suffered  nothing  thereby,  *•  Tmw 

and  parted  with  no  value  on  account  thereof.  *-^<^>^>^^ 

If  these  views  be  correct,  it  follows  that  the  order  should  be-^^^C^"" 
reversed,  and  the  judgment  set  aside,  upon  payment  of  costs  and  >>YAys^s~''~ 
disbursements  of  the  action,  and  $10  costs  of  the  motion,  to  the"^  ****-  "^^ 
respondent,  and  defendants  allowed  to  answer.    As  the  defendant  /\  cK^>  oL&* 
appellants,  however,  admit  liability  to  the  extent  of  $150  interest;^-  Y^-*^*^ 
and  costs,  the  plaintiff  in  the  action  may,  if  he  so  elects,  stipulate  ^a>j  rv^  t^> 
to  reduce  the  judgment  to  such  amount,  in  which  event  the  judg-  §_jbSs^j*t^~ 
ment,  to  that  extent,  should  be  permitted  to  stand,  and  be  enforced.  t^_^-n-^>--*3S 
Ten  dollars  costs  and  disbursements  of  this  appeal  to  the  appel-  Cn-o^^r^iA 
lants.    All  concur.    See  Crawford's  Ann.  Neg.  Inst.  Law,  p.  32 ;  ^-<~»  V-~~>- 
Roseman  v.  Mahony,  86  App.  Div.  (N.  Y.)  377.    Until  a  deci-  'vo^'^n^^K^ 
sion  of  the  Court  of  Appeals  on  the  point  involved,  the  construe- SUk^oa -vv~aj?> 
tion  of  the  statute  adopted  bv  this  case  will  be  open  to  question. -x>-o3:   c*r^ 

WHAT  CONSTITUTES  HOLDER  FOR  VALUE.  §  20.^^ 

Hoffman  &  Co.  v.  Bank  of  Milwaukee   {1870),  12  Wall   (79 

U.S.)  181. 

Error  to  the  Circuit  Court  for  the  District  of  Wisconsin ;  the 
case  being  thus : 

Chapin  &  Miles,  a  forwarding  and  commission  firm  in  Mil- 
waukee, were  engaged  in  moving  produce  to  Hoffman  &  Co.,  of 
Philadelphia,  for  sale  there.  The  course  of  their  business  was 
thus :    They  first  shipped  the  produce,  obtaining  a  bill  of  lading 


194  What  Constitutes  Holder  for  Value 

therefor,  to  which  they  attached  a  draft  drawn  by  them  on  their 
consignee  for  about  the  value  of  the  grain,  and  then  negotiated  the 
draft  with  bill  of  lading  attached,  to  some  bank  in  Milwaukee, 
and  obtained  the  money.  It  was  understood  that  the  draft  was 
drawn  upon  the  credit  of  the  property  called  for  by  the  bill  of 
lading,  and  would  be  paid  by  the  consignee  upon  receipt  of  the 
bill  of  lading;  and — with  perhaps  a  single  exception  where  the 
bills  of  lading,  not  being  obtained  during  bank  hours,  was  sent 
otherwise  than  with  the  draft — the  drafts  were  accompanied  by 
such  bills.  The  Philadelphia  firm,  however,  rarely  knew  what 
flour  belonged  to  any  particular  bill  of  lading ;  not  being  obliged 
by  the  railroad  clerks  at  Philadelphia,  where  they  were  known, 
to  exhibit  any  bill  of  lading  in  order  to  get  the  flour,  and  their 
custom  being,  on  getting  notice  from  the  railroad  office  that  flour 
had  arrived  for  them,  to  pay  the  charges,  give  receipts,  and  send 
their  drayman  for  it,  and  bring  it  away.  It  was  the  practice  of 
the  Milwaukee  firm  to  advise  their  Philadelphia  correspondents 
by  letter  of  shipments  made  and  drafts  drawn,  which  advisements 
were  acknowledged  with  a  promise  "to  honor  the  drafts."  When 
flour  was  "slow"  in  going  forward  they  corresponded  with  the 
Milwaukee  house  about  it,  but  did  not  on  that  account  refuse 
acceptance  or  payment  of  any  bill. 

Having  been  thus  dealing  for  about  sixteen  months,  Chapin 
&  Miles  drew  three  drafts  on  Hoffman  &  Co.,  in  the  ordinary 
way,  and  attaching  to  them  bills  of  lading  which  they  had  forged, 
negotiated,  in  the  ordinary  course  of  business,  the  drafts,  with  the 
forged  bills  of  lading  attached,  to  the  City  Bank  of  Milwaukee, 
getting  the  money  for  them.  The  bank  knew  nothing  of  the  for- 
gery of  the  bills  of  lading.  The  ordinary  correspondence  between 
the  two  houses  took  place.  That  in  regard  to  one  draft  will 
exhibit  its  character. 

"Milwaukee,  February  26th,  1869. 
"Messrs  Hoffman  &  Co.,  Philadelphia. 

"Dear  Sirs  :  We  ship  to  you  today  200  bbls.  'Prairie  Flour,' 
and  draw  at  s't  for  $1100,  which  please  honor.  Will  draw  for  $5 
only  when  we  can,  but  must  crowd  $5^4  part  of  the  time. 

"Yours  truly, 

"Chapin  &  Miles." 


Hoffman  &  Co.  v.  Bank  of  Milwaukee  195 

"Philadelphia,  March  2d,  1869. 
"Messrs.  Chapin  &  Miles. 

"Gentlemen:  Yours  26th  ult.  here.  Your  draft  $1100, 
will  be  paid,  but  we  think  you  should  try  to  keep  them  down  to  $5 
per  barrel.    We  advise  sale  of  100  Prairie,  at  $7,  and  54,  at  $7.25. 

"Yours  respectfully, 

"Hoffman  &  Co." 

No  flour  was  forwarded.  The  Milwaukee  bank  forwarded  the 
drafts,  however,  with  the  forged  bills  of  lading  attached,  to  their 
correspondent,  the  Park  Bank  in  New  York,  for  collection.  The 
Park  Bank  forwarded  the  same  to  its  correspondent,  the  Common- 
wealth Bank  of  Philadelphia,  for  the  same  purpose,  and  the  latter 
bank  presented  the  draft  and  bill  of  lading  to  the  drawees,  Hoff- 
man &  Co.,  who,  knowing  the  drafts  to  be  genuine,  and  not  sup- 
posing that  the  bills  of  lading  were  otherwise,  paid  the  drafts  to 
the  Philadelphia  bank,  which  remitted  the  money  back  to  the 
Park  Bank  to  the  credit  of  the  Bank  of  Milwaukee. 

No  flour  coming  forward,  Hoffman  &  Co.  discovered  that 
the  bills  of  lading  were  forged,  and  Miles  &  Chapin  being  insol- 
vent, they  sued  the  Bank  of  Milwaukee  to  recover  the  amount 
paid,  as  above  stated. 

The  declaration  in  the  case  contained  the  common  counts  in 
assumpsit,  with  a  notice,  attached,  to  the  defendant,  "that  he 
action  was  brought  to  recover  $3100,  money  paid  by  the  plaintiff, 
under  mistake  of  fact,  upon  drafts  and  bills  of  lading  (of  which 
copies  were  annexed),  the  mistake  being  that  the  plaintiffs  paid 
the  money  upon  the  belief  that  the  said  bills  of  lading  were  genu- 
ine instruments ;  whereas,  in  fact,  they  were  forged ;  the  amount 
of  money  paid  being  the  amount  called  for  by  the  drafts,  which 
was  paid  upon  the  credit  and  inducement  of  the  bills  of  lading." 

Neither  the  name  of  the  defendant,  the  Milwaukee  bank,  nor 
of  any  of  its  officers  or  agents,  appeared  in  or  upon  the  bills  of 
lading  in  question,  and  had  it  not  been  for  extrinsic  evidence,  it 
could  not  have  been  told  from  those  bills  that  the  bank  had  had 
anything  to  do  with  them.  Nor  had  the  bank  had  any  dealings 
or  correspondence  of  any  kind  with  the  Philadelphia  house,  rela- 
tive to  the  shipments  of  flour  by  Chapin  &  Miles,  or  relative  to 
the  drafts  drawn  by  them. 

On  this  case  the  court  below  directed  the  jury  to  find  for  the 
bank,  defendant  in  the  case,  and  the  plaintiffs  brought  the  case 
here. 

Mr.  M.  H.  Carpenter,  for  the  plaintiff  in  error. 
Mr.  J.  W.  Cary,  contra. 


196  What  Constitutes  Holder  for  Value 

Mr.  Justice  Clifford  delivered  the  opinion  of  the  court. 

Acceptors  of  a  bill  of  exchange,  by  the  act  of  acceptance, 
admit  the  genuineness  of  the  signatures  of  the  drawers,  and  the 
competency  of  the  drawers  to  assume  that  responsibility.  Such 
an  act  imports  an  engagement,  on  the  part  of  the  acceptor,  to  the 
payee  or  other  lawful  holder  of  the  bill,  to  pay  the  same,  if  duly 
presented,  when  it  becomes  due,  according  to  the  tenor  of  the 
acceptance.  He  engages  to  pay  the  holder,  whether  payee  or 
indorsee,  the  full  amount  of  the  bill  at  maturity,  and  if  he  does 
not,  the  holder  has  a  right  of  action  against  him,  and  he  may  also 
have  one  against  the  drawer.  Drawers  of  bills  of  exchange,  how- 
ever, are  not  liable  to  the  holder  under  such  circumstances,  until 
it  appears  that  the  bill  was  duly  presented,  and  that  the  acceptor 
refused  or  neglected  to  pay  the  same  according  to  the  tenor  of  the 
instrument,  as  their  liability  is  contingent  and  subject  to  those 
conditions  precedent. 

Three  bills  of  exchange,  as  exhibited  in  the  record,  were 
drawn  by  Chapin,  Miles  &  Co.,  payable  to  the  order  of  the  defend- 
ants, and  the  records  show  that  they,  the  defendants,  received 
and  discounted  the  three  bills  at  the  request  of  the  drawers. 
Attached  to  each  bill  of  exchange  was  a  bill  of  lading  for  two 
hundred  barrels  of  flour,  shipped,  as  therein  represented,  by 
the  drawers  of  the  bills  of  exchange,  and  consigned  to  the  plain- 
tiffs; and  the  record  also  shows  that  the  drawers,  in  each  case, 
sent  a  letter  of  advice  to  the  consignees  apprising  them  of  the 
shipment,  and  that  they  would  draw  on  them  as  such  con- 
signees for  the  respective  amounts  specified  in  the  several  bills  of 
exchange.  Prompt  reply  in  each  case  was  communicated  by  the 
plaintiffs,  acknowledging  the  receipt  of  the  letter  of  advice  sent 
by  the  shippers,  and  promising  to  honor  the  bills  of  exchange,  as 
therein  requested.  Evidence  was  also  introduced  by  the  plaintiffs 
showing  that  the  defendants  indorsed  the  bills  of  exchange  and 
forwarded  the  same,  with  the  bills  of  lading  attached,  to  the 
National  Park  Bank  of  the  city  of  New  York,  their  regular  cor- 
respondent ;  that  the  same  were  subsequently  indorsed  by  the 
latter  bank,  and  forwarded  to  the  Commonwealth  Bank  of  Phila- 
delphia for  collection ;  that  the  Commonwealth  Bank  presented 
the  bills  of  exchange,  with  the  bills  of  lading  attached,  to  the* 
plaintiffs,  as  the  acceptors,  and  that  they  paid  the  respective 
amounts  as  they  had  previously  promised  to  do,  and  that  the 
Commonwealth  Bank  remitted  the  proceeds  in  each  case  to  the 
National  Park  Bank,  where  the  respective  amounts  were  credited 
to  the  defendants.     Proof  was  also  introduced  by  the  plaintiffs 


Hoffman  &  Co.  v.  Bank  of  Milwaukee  197 

showing  that  each  of  the  bills  of  lading  was  a  forgery,  and  that 
the  plaintiffs,  before  the  commencement  of  the  suit,  tendered  the 
same  and  the  bills  of  exchange  to  the  defendants,  and  that  they 
demanded  of  the  defendants,  at  the  same  time,  the  respective 
amounts  so  paid  by  them  to  the  Commonwealth  Bank.  Payment 
as  demanded  being  refused,  the  plaintiffs  brought  an  action  of 
assumpsit  against  the  defendants  for  money  had  and  received, 
claiming  to  recover  back  the  several  amounts  so  paid  as  money 
paid  by  mistake,  but  the  verdict  and  judgment  were  for  the 
defendants,  and  the  plaintiffs  sued  out  a  writ  of  error,  and 
removed  the  cause  into  this  court.  Testimony  was  also  introduced 
by  the  defendants  tending  to  show  that  the  shippers  were  millers ; 
that  they  made  an  arrangement  with  the  plaintiffs  to  ship  flour 
to  them  at  Philadelphia  for  sale  in  that  market,  the  plaintiffs 
agreeing  that  they,  the  shippers,  might  draw  on  them  for  advances 
on  the  flour,  to  be  reimbursed  out  of  the  proceeds  of  the  sales ,' 
that  for  more  than  a  year  they  had  been  in  the  habit  of  shipping 
flour  to  the  plaintiffs  under  that  arrangement  and  of  negotiating 
drafts  on  the  plaintiffs  to  the  banks  in  that  city,  accompanied  by 
bills  of  lading  in  form  like  those  given  in  evidence  in  this  case; 
that  the  drafts,  with  the  bills  of  lading  attached,  were  sent  for- 
ward by  the  banks,  where  the  same  were  discounted,  and  that  the 
same  were  paid  by  the  plaintiffs ;  that  the  drawers  of  the  drafts  in 
every  case  notified  the  plaintiffs  of  the  same,  and  that  the  plain- 
tiffs, as  in  this  case,  answered  the  letter  of  advice  and  promised 
to  pay  the  amount.  They  also  proved  that  the  drawers  of  the 
drafts  in  this  case  informed  their  cashier  that  the  same  would 
always  be  drawn  upon  property,  and  that  the  bills  of  lading  would 
accompany  the  drafts,  and  that  they  had  no  knowledge  or  intima- 
tion that  the  bills  of  lading  were  not  genuine.  Instructions  were 
requested  by  the  plaintiffs,  that  if  the  jury  found  that  the  respec- 
tive bills  of  lading  were  not  genuine,  that  they  were  entitled  to 
recover  the  several  amounts  paid  to  the  Commonwealth  Bank, 
with  interest ;  but  the  court  refused  to  give  the  instruction  as 
prayed,  and  instructed  the  jury  that  if  they  found  the  facts  as 
shown  by  the  defendants,  the  plaintiffs  could  not  recover  in  the 
case,  even  though  they  should  find  that  the  several  bills  of  lading 
were  a  forgery. 

Money  paid  under  a  mistake  of  facts,  it  is  said,  may  be  recov- 
ered back  as  having  been  paid  without  consideration,  but  the 
decisive  answer  to  that  suggestion,  as  applied  to  the  case  before 
the  court,  is  that  money  paid,  as  in  this  case,  by  the  acceptor  of 
a  bill  of  exchange  to  the  payee  of  the  same,  or  to  a  subsequent 


198  What  Constitutes  Holder  for  Value 

indorsee,  in  discharge  of  his  legal  obligation  as  such,  is  not  a 
payment  by_mistake  nor  without  consideration,  unless~lt  be_shown 
that  the  instrument  was  fraudulent  in  its  inception,  or  that  the. 
ron  si  deration  was  illegal,  or  that  the  facts_and  circumstances 
which  jmpeach  the  transaction,  as  between  thejcceptor  jukT 
drawei^jwere  known  to  the  payee  or  subsequent  indorsee  at  the 
time  he  be^ame^thj^hgjder  of  the  instrument.  (Fitch  v.  Jones, 
5  l^llis  &  Blackburn,  238;  Arbouin  v.  Anderson,  1  Adolphus  & 
Ellis,  N.  S.  498;  Smith  v.  Braitie,  16  Id.,  N.  S.  244;  Hall  v. 
Featherstone,  3  Hurlstone  &  Norman,  287). 

Such  an  instrument,  as  between  the  payee  and  the  acceptor, 
imports  a  sufficient  consideration,  and  in  a  suit  by  the  former 
against  the  latter  the  defence  of  prior  equities,  as  between  the 
acceptor  and  drawer,  is  not  jjpen  unless  it  be  shown  that  the 
payee,  at  the  time  he  became  the  holder  of  the  instrument,  had 
knowledge  of  those  facts  ancLdxcjirn^tanrpg . 

Attempt  is  made  in  argument  to  show  that  the  plaintiffs 
accepted  the  bills  of  exchange  upon  the  faith  and  security  of  the 
bills  of  lading  attached  to  the  same  at  the  time  the  bills  of 
exchange  were  discounted  by  the  defendants.  Suppose  it  was  so, 
which  is  not  satisfactorily  proved,  still  it  is  not  perceived  that  the 
concession,  if  made,  would  benefit  the  plaintiffs,  as  the  bills  of 
exchange  are  in  the  usual  form  and  contain  no  reference  what- 
ever to  the  bills  of  lading,  and  it  is  not  pretended  that  the  defend- 
ants had  any  knowledge  or  intimation  that  the  bills  of  lading  were 
not  genuine,  nor  is  it  pretended  that  they  made  any  representation 
upon  the  subject  to  induce  the  plaintiffs  to  contract  any  such 
liability.  They  received  the  bills  of  exchange  in  the  usual  course 
of  their  business  as  a  bank  of  discount  and  paid  the  full  amount 
of  the  net  proceeds  of  the  same  to  the  drawers,  and  it  is  not  even 
suggested  that  any  act  of  the  defendants,  except  the  indorsement 
of  the  bills  of  exchange  in  the  usual  course  of  their  business, 
operated  to  the  prejudice  of  the  plaintiffs  or  prevented  them  from 
making  an  earlier  discovery  of  the  true  character  of  the  transac- 
tion. On  the  contrary,  it  distinctly  appears  that  the  drawers  of 
the  bills  of  exchange  were  the  regular  correspondents  of  the 
plaintiffs,  and  that  they  became  the  acceptors  of  the  bills  of 
exchange  at  the  request  of  the  drawers  of  the  same  and  upon 
their  representations  that  the  flour  mentioned  in  the  bills  of  lading 
had  been  shipped  to  their  firm  for  sale  under  the  arrangement 
before  described. 

Beyond  doubtJhe_ bills  of  lading  gave  some  credit  to  the  bills 
ofexchange  beyond  what  was  created  by  the  pecuniary  standing 


Hoffman  &  Co.  v.  Bank  of  Milwaukee  199 

of  the  parties  to  the  same,  but  it  is  clear  that  theyjire  not  a  part 
of  those  instruments  nor  are  they  referred  to  either  in  the  bocry^ 
of  the  bills  or  in  the  acceptance,  and  they  cannot  be  regarded  in 
any  more_favorable  light  for  the  plaintiffs  than  as"  collateral 
securitx  accompanying  the  bills  of  exchange. 

Sent  forward,  as  the  bills  of  lading  were,  with  the  bills  of 
exchange,  it  is  beyond  question  that  the  property  in  the  same 
passed  to  the  acceptors  when  they  paid  the  several  amounts  there- 
in specified,  as  the  lien,  if  any,  in  favor  of  the  defendants  was 
then  displaced  and  the  plaintiffs  became  entitled  to  the  instru- 
ments as  the  muniments  of  title  to  the  flour  shipped  to  them  for 
sale  and  as  security  for  the  money  which  they  had  advanced  under 
the  arrangement  between  them  and  the  drawers  of  the  bills  of 
exchange.  Proof,  therefore,  that  the  bills  of  lading  were  forgeries 
could  not  operate  to  discharge  the  liability  of  the  plaintiffs,  as 
acceptors,  to  pay  the  amounts  to  the  payees  or  their  indorsees,  as 
the  payees  were  innocent  holders,  having  paid  value  for  the  same 
in  the  usual  course  of  business.  (Leather  v.  Simpson,  Law 
Reports,  n  Equity,  398). 

Different  rules  apply  between  the  immediate  parties  to  a 
bill  of  exchange — as  between  the  drawer  and  the  acceptor,  or 
between  the  payee  and  the  drawer — as  the  only  consideration  as 
between  those  parties  is  that  which  moves  from  the  plaintiff  to 
the  defendant ;  and  the  rule  is,  if  that  consideration  fails,  proof 
of  that  fact  is  a  good  defence  to  the  action.  But  the  rule  is  other- 
wise  between  the  remote  parties  to  the  bill,  as,  for  example, 
between  the  payee  and  the  acceptor,  or  between  the  indorsee  and 
the  acceptor,  as  two  distinct  considerations  come  in  question  in 
every  such  case  where  the  payee  or  indorsee  became  the  holder 
of  the  bill  before  it  was  overdue  and  without  any  knowledge  of 
the  facts  and  circumstances  which  impeach  the  title  as  between 
the  immediate  parties  to  the  instrument.     Those  two  considera-  ^c 

tions  are  as  follows :  First,  that  which  the  defendant  received  forT 
his  liability,  and,  secondly,  that  which  the  plaintiff  gave  for  his 
title,  and  the  rule  is  well  settled  that  the  action  between  the 
remote  parties  to  the  bill  will  not  be  defeated  unless  there  be  an 
absence  or  failure  of  both  these  considerations.  (Robinson  v.' 
Reynolds,  2  Q.  B.  202 ;  Same  v.  Same,  in  error,  lb.  210 ;  Byles  on 
Bills  [5th  Am.  Ed.],  124;  Thiedcmann  v.  Goldschmidt,  1  De  Gex, 
Fisher  &  Jones,  Ch.  App.  10). 

Unless  both  considerations  fail  in  a  suit  by  the  payee  against 
the  acceptor,  it  is  clear  that  the  action  may  be  maintained,  and    ^,   p-^i\^c^ 
many  decided  cases  affirm  the  rule,  where  the  suit  is  in  the  name  X^>  oj^w^v^ 


200  What  Constitutes  Holder  for  Value 

of  a  remote  indorsee  against  the  acceptor,  that  if  any  intermediate 
holder  between  the  defendant  and  the  plaintiff  gave  value  for  the 
bill,  such  an  intervening  consideration  will  sustain  the  title  of 
the  plaintiff.  (Hunter  v.  Wilson,  4  Exchequer  489;  Boyd  v.  Mc- 
Cami,  10  Maryland,  118;  Howell  v.  Crane,  12  Louisiana  Annual, 
126;  Watson  v.  Flanagan,  14  Texas,  354). 

Where  it  was  arranged  between  a  drawer  and  his  corres- 
pondent that  the  latter  would  accept  his  bills  in  consideration  of 
produce  to  be  shipped  or  transported  to  the  acceptor  for  sale, 
the  Supreme  Court  of  Pennsylvania  held,  (Craig  v.  Sibbett  et  al., 
15  Pennsylvania,  240),  that  the  acceptor  was  bound  to  the  payee 
by  his  general  acceptance  of  a  bill,  although  it  turned  out  that 
the  bill  of  lading  forwarded  at  the  same  time  with  the  bill  of 
exchange  was  fraudulent,  it  not  being  shown  that  the  payee  of 
the  bill  was  privy  to  the  fraud.  Evidence  was  introduced  in  that 
case  showing  that  the  payee  knew  what  the  terms  of  the  arrange- 
ment between  the  drawer  and  the  payee  were,  but  the  court  held 
that  mere  knowledge  of  the  fact  was  not  sufficient  to  constitute 
a  defence,  as  the  payee  was  not  a  party  to  the  arrangement  and 
was  not  in  any  respect  a  surety  for  the  good  faith  and  fair  dealing 
of  the  shipper. 

Failure  of  consideration,  as  between  the  drawer  and  acceptor 
of_a_bHT  of  exchange,  is  no  defence  to  an  action  brought  by  the 
payelfagajnsVthe  acceptor,  if  the  acceptance  was  unconditional  in 
its  terrn~sTanorTra^pxaj^_ihat  the  plaintiff  paid  value  for  the^bill, 
even  though  the  acceptor  was_defraudcil  Ly^jhe_ drawer,  unless  rt 
]5e~  shown  that  TEHpayee  had  knowledge  of  the  fraudulent  acts 
gf__tHe3rawer  bejo^ejhej^irl  snrh  valnp  and  became  the  holder. 
of  the  instrument.  (United  States  v.  Bank  of  Metropolis,  15 
PetersT393). 

Testimony  to  show  that  the  payees  were  not  bona  fide  holders 
of  the  bills  would  be  admissible  in  a  suit  by  them  against  the 
acceptors,  and  would  constitute,  if  believed,  a  good  defence,  but 
the  evidence  in  this  case  does  not  show  that  they  did  anything 
that  is  not  entirely  sanctioned  by  commercial  usage.  They  dis- 
counted these  bills  and  they  had  a  right  to  present  them  for 
acceptance,  and  having  obtained  the  acceptance  they  have  an 
undoubted  right  to  apply  the  proceeds  collected  from  the  acceptors 
to  their  own  indemnity.  (Thiedemann  v.  Goldschmidt  et  al.,  1 
De  Gex,  Fisher  &  Jones,  Ch.  App.  10;  Robinson  v.  Reynolds,  2 
Q.  B.211). 

Forgery  of  the  bills  of  lading  would  be  a  good  defence  to  an 
action  on  the  bills  if  the  defendants  in  this  case  had  been  the 


Hoffman  &  Co.  v.  Bank  of  Milwaukee  201 

drawers,  but  they  were  payees  and  holders  for  value  in  the  reg- 
ular course  of  business,  and  the  case  last  referred  to,  which  was 
decided  in  the  Exchequer  Chamber,  shows  that  such  an  accept- 
ance binds  the  acceptor  conclusively  as  between  them  and  every 
bout  tide  holder  for  value. 

Very  many  cases  decide  that  the  drawee  of  a  bill  of  exchange 
is  bound  to  know  the  handwriting  of  his  correspondent,  the 
drawer,  and  that  if  he  accepts  or  pays  a  bill  in  the  hands  of  a 
bona  tide  holder  for  value,  he  is  concluded  by  the  act,  although 
the  bill  turns  out  to  be  a  forgery.  If  he  has  accepted  he  must  pay, 
and  if  he  has  paid  he  cannot  recover  the  money  back,  as  the 
money,  in  such  a  case,  is  paid  in  pursuance  of  a  legal  obligation 
as  understood  in  the  commercial  law.  (Goddard  v.  Merchants' 
Bank,  4  Comstock,  149;  Bank  of  Commerce  v.  Union  Bank,  3  Id. 
234;  Bank  of  the  United  States  v.  Bank  of  Georgia,  10  Wheaton, 
348;  Price  v.  Neal,  3  Burrow,  1355). 

Difficulty  sometimes  arises  in  determining  whether  the  plain- 
tiff, in  an  action  on  a  bill  of  exchange,  is  the  immediate  promisee 
of  the  defendant,  or  whether  he  is  to  be  regarded  as  a  remote 
party,  but  it  is  settled  law  that  the  payee,  where  he  discounts 
the  bill  at  thejgquest  of  the  drawer,  is  regarded  as  a  stranger 
teethe  acceptor  in  respect  to  the  consideration  for  the  acceptance ; 
consequently,  if  the  acceptance  is  absolute  in  its  terms  and  the 
bill  is  received  in  good  faith  and  for  value,  it  is  no  answer  to  an 
action  by  him  that  the  defendant  received  no  consideration  for 
his  acceptance  or  that  the  consideration  therefor  has  failed ;  and 
it  is  immaterial  in  that  behalf  whether  the  bill  was  accepted  while 
in  the  hands  of  the  drawer  and  at  his  request,  or  whether  it  had 
passed  into  the  hands  of  the  payee  before  acceptance  and  was 
accepted  at  his  request.  (Parsons  on  Bills,  179;  Munroe  v.  Bor- 
dier,  8  C.  B.  862). 

Certain  other  defences,  such  as  that  the  payments  were  volun- 
tarily made,  and  that  the  title  to  the  bills  at  the  time  the  payments 
were  made  was  in  the  National  Park  Bank,  were  also  set  up  by 
the  defendants,  but  the  court  does  not  find  it  necessary  to  exam- 
ine those  matters,  as  they  are  of  the  opinion  that  the  payments 
if  made  to  the  payees  of  the  bills,  as  contended  by  the  plaintiffs, 
were  made  in  pursuance  of  a  legal  obligation  and  that  the  money 
cannot  be  recovered  back.  Judgment  affirmed. 


202  Lien  on  Instrument 

when  lien  on  instrument  constitutes  holder  for  value. 

§29- 

Stoddard  v.  Kimball  (1830),  6  Cush.  (Mass.)  469. 

O.  P.  Lord,  for  the  plaintiffs. 
N.  J.  Lord,  for  the  defendant. 

Shaw,  C.J.  This  was  a  suit  brought  by  the  plaintiff  as 
indorsee  of  a  promissory  note,  against  the  defendant  as  indorser. 
The  defence  relied  on  was,  that  the  defendant  indorsed  the  note, 
at  the  request  and  for  the  accommodation  of  the  maker,  for  a 
special  purpose,  that  of  taking  up  another  note  on  which  he  was 
indorser,  and  that  it  was  not  so  applied,  but  was  negotiated  to  the 
plaintiffs,  as  collateral  security  for  a  debt  due  to  them.  The 
defendant  also  contended,  that  the  plaintiffs,  at  the  time  of  taking 
the  note,  had  notice  of  the  misapplication  of  the  same,  as  above 
stated ;  but  this  fact  was  left  to  the  jury,  who  found  that  the 
pj^hitiffsjiad^no  such  notice. 

It  further  appeared,  that  some  payments  had  been  made  by 
the  maker  of  the  note  to  the  plaintiffs,  towards  the  discharge  of 
the  debt,  for  securing  which  to  the  plaintiffs  this  note  was 
received,  and  also  that  the  maker  being  insolvent,  the  plaintiffs 
proved  this  debt  against  his  estate,  and  received  a  dividend. 

The  defendant  contended,  that  if  liable  at  all,  he  was  liable 
only  for  the  balance  of  the  debt  due  the  plaintiffs,  if  less  than 
the  amount  of  the  note,  and  the  judge,  who  tried  the  cause,  so 
ruled,  subject  to  the  opinion  of  the  whole  court,  and  in  case  they 
should  be  of  opinion  that  the  plaintiffs  are  entitled  to  recover 
the  whole  amount,  the  verdict  is  to  be  altered  and  amended 
accordingly. 

We  think  the  direction  was  right.  An  indorser  of  an  accom- 
modation note,  passed  by  indorsement  to  a  bona  fide  holder,  in 
due  course  of  business,  is  effectually  bound  to  all  the  liability,  .-to 
which,  by  law,  the  indorser  of  a  business  note  is  liable.  He  stip- 
ulates to  take  on  himself  the  qualified  obligation  of  one,  who 
indorses  and  puts  in  circulation  a  note  taken  by  himself  for  value 
in  the  course  of  business. 

If  indeed  an  accommodation  note  is  obtained  from  another, 
by  fraud,  deception,  or  false  practices,  or  having  been  obtained  for 
one  purpose,  is  fraudulently  misapplied  to  another,  and  it  is  nego- 
tiated to  one,  even  for  value,  with  full  notice  of  the  fraud  in  obtain- 
ing or  misusing  it,  he  cannot  recover ;  he  is  not  a  bona  fide  holder ; 
an  attempt  to  recover  it  would  make  him  a  partaker  in  the  fraud ; 
and  the  same  would  be  true  of  a  business  note. 


Redfern  et  al.  v.  Rosenthal  et  al.  203 

In  the  present  case.  jt_arjpearing  that  the  note  was  negotiated 
to_the  plaintiffs  before  it  was  due,  for  a  valuable  consideration^ 
and  the  jury  having  found  that  they  took  it  without  notice  of__ 
thejriisapplication  by  the  maker,  it  is  clear  that  they  have  a  right 
to  recover;  and  the  _only_  remaining  g^estionjSj_for  what  amount 
they  may  recover.  In  general,  the  holder  of  an  indorsed  note 
yvill  be  entitled  to  recover  the  whole  amount  of  the  face  of  the 
note,  because  the  presumption  of  fact,  in  the  absence  of  counter 
proof,  is,  that  he  gave  the  full  value  for  it,  or  that  he  took  it 
from  some  other  holder  for  value,  to  collect  the  amount,  receive 
a  certain  part  to  his  own  use,  and  account  to  the  party  from  whom 
he  took  it  for  the  surplus.  Having  taken  it  to  secure  a  pre- 
existing debt,  of  a  less  amount,  he  is  a  holder  for  value  in  his 
own  right,  only  to  the  amount  of  the  debt  due  him.  If  therefore 
it  appears  in  proof,  that  the  plaintiff  is  not  accountable  to  any 
third  person  for  any  surplus,  then  there  is  no  reason  why  he 
should  recover  any  more  than  the  balance  of  the  debt,  for  which 
he  is  a  bona  fide  holder  for  value.  Here,  it  appears  that  the 
plaintiff  received  this  note  of  the  maker,  for  whose  accommoda- 
tion thejdefendant  indorsed  it  It  being  obvious,  that  the  plaintiff 
can  recover  nothing  as  trustee  for  the  party  from  whom  lie 
received  it,  he  is  liable  over  to  nobody  for  the  surplus,  and  there- 
fore can  have  judgment  only  for  the  amount  due  to  himself,  for 
his  own  use  and  in  his  own  right,  which  is  so  much  of  the  note 
as  may  be  necessary  to  satisfy  the  balance  of  the  debt,  for  the 
secunty__Q_f_which  he  receiveTHt. 

Judgment  on  the  verdict  for  the  plaintiff  for  the  smaller  sum. 


JiRedfern  et  al.  v.  Rosenthal  et  al.  (1902),  86  L.  T.  R.  855. 

This  was  an  appeal  by  the  defendants  from  a  judgment  of 
the  King's  Bench  Division  (Channell  and  Bucknill,  JJ.),  affirm- 
ing a  decision  of  the  judge  of  the  Birmingham  County  Court. 

The  action  was  brought  against  the  acceptors  of  a  bill  of 
exchange,  dated  the  23d  June,  1899,  for  200/.,  payable  four 
months  after  date. 

The  facts  appear  in  the  judgment  of  the  Master  of  the  Rolls. 

It  may  further  be  added  that,  on  the  7th  Oct.,  1899,  ^ 
appeared  that  the  plaintiffs  first  learnt  that  the  bill  was  an  accom- 
modation bill. 


204  Lien  on  Instrument 

The  judgment  of  the  King's  Bench  Division  is  reported  85 
L.  T.  Rep.  313. 

The  Bills  of  Exchange  Act  1882  (45  and  46  Vict.  c.  61)  pro- 
vides as  follows : 

Sect.  27,  sub-sect.  3.  Where  the  holder  of  a  bill  has  a  lien  on 
it,  arising  either  from  contract  or  by  implication  of  law,  he  is 
deemed  to  be  a  holder  for  value  to  the  extent  of  the  sum  for  which 
he  has  a  lien. 

Collins,  M.R.  This  is  an  appeal  from  a  judgment  of  the 
Divisional  Court,  consisting  of  Channell  and  Bucknill,  JJ.,  who 
affirmed  a  decision  of  the  judge  of  the  Birmingham  County  Court, 
but  on  different  grounds.  The  transaction  which  gave  rise  to 
the  action  is  somewhat  complicated,  but  the  facts  are  shortly  these : 
Rosenthal  Brothers  were  desirous  of  raising  some  money,  and 
for  this  purpose  sent  to  Bischoffswerder  a  bill  of  exchange,  dated 
the  23d  June,  1899,  payable  four  months  after  date  accepted  by 
them,  and  they  requested  him  to  fill  in  his  name  as  drawer,  and 
get  the  bill  discounted  for  them.  Bischoffswerder  filled  in  his 
name  as  drawer,  indorsed  the  bill  in  blank,  and  handed  it  to  a  man 
named  Lewis,  who  agreed  to  get  it  discounted.  Lewis  then 
claimed  a  right  to  keep  the  bill,  on  the  ground  of  Bischoffswerder 
being  in  debt  to  him.  The  bill  in  Lewis'  hands  being  a  fully  nego- 
tiable instrument,  Bischoffswerder  at  once  in  July  instructed  his 
solicitors,  Messrs.  Redfern  and  Son,  who  are  the  plaintiffs  in  the 
present  action,  to  commence  an  action  against  Lewis  in  order  to 
stop  him  from  negotiating  it,  and  to  get  it  back  from  him.  An 
interlocutory  injunction  was  obtained,  restraining  Lewis  until  the 
trial  of  the  action  from  negotiating  the  bill.  The  action  came  on 
for  trial  at  Birmingham  Assizes  in  Dec,  1899,  so  that  by  that 
time  the  bill  was  overdue.  Bischoffswerder  obtained  a  verdict 
and  judgment  for  the  recovery  of  the  bill.  At  the  end  of  the 
trial  the  bill  was  handed  over  by  Lewis  to  the  managing  clerk  of 
Messrs.  Redfern  and  Son.  The  clerk  showed  the  bill  to  Bischoff- 
swerder and  to  Rosenthal  Brothers,  who  were  present  in  court, 
but  after  looking  at  it  they  handed  it  back  to  the  clerk,  who  said 
that  Messrs.  Redfern  and  Son  had  a  right  to  retain  it  as  they 
had  a  lien  on  it  for  their  costs.  The  present  action  was  then 
brought  by  Messrs.  Redfern  and  Son  to  recover  the  amount  of 
their  costs  in  Bischoffswerder's  action  against  Lewis.  The  action 
is  brought  not  only  against  Bischoffswerder,  who  is  clearly  liable 
for  the  costs,  but  also  against  Rosenthal  Brothers  as  acceptors  of 
the  bill,  for  so  much  of  the  amount  due  upon  the  bill  as  will  sat- 
isfy the  plaintiffs'  claim  for  costs.    The  County  Court  judge  held 


Bedfern  et  al.  v.  Rosenthal  et  al.  205 

that  Rosenthal  Brothers  were  liable  upon  the  bill,  under  sect.  2J, 
sub-sect.  3,  of  the  Bills  of  Exchange  Act  1882,  and  that  judg- 
ment was  affirmed  by  the  King's  Bench  Division.  Rosenthal 
Brothers  have  appealed  against  this  decision.  Bischoffswerder  is 
no  party  to  the  appeal.  Now,  sect.  27,  sub-sect.  3,  provides  that 
where  the  holder  of  a  bill  has  a  lien  on  it,  arising  either  from 
contract  or  by  implication  of  law,  he  is  deemed  to  be  a  holder  for 
value  to  the  extent  of  the  sum  for  which  he  has  a  lien.  The  plain- 
tiffs' argument  was  that  they  were  holders  of  the  bill,  and  as 
they  had  a  lien  on  it,  they  were  holders  for  value,  and  were  there- 
fore entitled  to  recover  in  this  action.  Now,  there  was  some 
evidence  at  the  trial  of  the  action  that  Rosenthal  Brothers  and 
Bischoffswerder,  after  some  discussion  with  the  plaintiffs'  clerk, 
had  handed  the  bill  to  him  for  the  purpose  of  Messrs.  Redfern 
and  Son's  lien  so  as  to  make  him  holder  for  value.  A  contro- 
versy arose  as  to  this  evidence,  and  thereupon  the  plaintiffs  said 
that  they  did  not  wish  to  rely  upon  that  ground,  and  that  they 
relied  solely  upon  their  common  law  rights  of  lien  and  on  the 
Bills  of  Exchange  Act  1882.  Now,  upon  these  facts  I  am  of 
opinion  that  the  plaintiffs  have  no  right  of  action  against  Rosen- 
thal Brothers.  The  bill  was  handed  by  Rosenthal  Brothers  to 
Bischoffswerder  for  a  specific  purpose — namely,  to  get  it  dis- 
counted— and  that  purpose  failed.  When  the  bill  came  into  the 
plaintiffs'  hands  it  was  overdue.  It  was  not  a  negotiable  instru- 
meni7  As  between  the  plaintiffs  and  the  defendants  the  bill  never 
was  a  living  instrument.  The  plaintiffs  when  they  first  got  pos- 
session of  the  document  as  Bischoffswerder's  solicitors  knew  all 
these  facts  about  it.  Yet  it  was  contended  that  by  getting  the 
physical  custody  of  this  piece  of  paper  and  having  done  work  as 
solicitors  they  had  acquired  the  rights  of  a  holder  for  value  under 
the  Bills  of  Exchange  Act  1882  and  could  sue  the  acceptors  of 
the  bill.  It  seems  to  me  jmrjos^ibleJix^a^J±LaLb^^tm^JioMjlL 
an^oyerdue  bill  such  as  this  they  became  holders  forjEalue.  The 
bill  should  have  been  re-issued  in  order  to  give  them  any  rights 
upon  it.  They  have  misconceived  their  position.  Their  rights 
against  the  defendants  in  respect  of  their  lien  were  no  greater 
than  the  rights  of  Bischoffswerder  on  the  bill  against  the  defend- 
ants. Bischoffswerder,  under  the  circumstances  that  I  have  men- 
tioned, could  not,  with  the  plaintiffs'  knowledge  of  the  facts,  give 
them  any  rights  on  the  bill  qua  bill.  The  instrument  when  they 
received  it  was  dead,  and  they  could  not  treat  it  as  a  living  one. 
That  is  enough  to  decide  this  case.  It  is  not  necessary  to  give 
any  opinion  as  to  what  the  plaintiffs'  rights  would  have  been  if 


206  Lien  on  Instrument 

the  document  had  been  a  living  bill.  The  appeal  must  therefore 
be  allowed.  In  the  Divisional  Court  Channel,  J.,  seems  to  have 
given  judgment  with  great  hesitation,  and  I  think  he  accepted  an 
inference  of  fact  which  was  not  supported  by  the  evidence.  The 
court  seems  to  have  lost  sight  of  the  view  that  at  the  time  .when 
the  plaintiffs'  supposed  lien  came  into  existence,  the  instrument 
had,  under^Ee~arcumstances,'"ceased  to  be  a  negotiable^jnstnr: 
ment. 

Mathew,  LJ.  I  am  of  the  same  opinion.  It  is  said  that 
the  effect  of  the  judgment  in  the  action  by  Bischoffswerder  against 
Lewis  to  restrain  the  negotiation  of  the  bill  was  to  restore  a  nego- 
tiable character  to  the  bill  and  give  the  plaintiffs  a  right  to  sue 
upon  it.  That  would  be  a  very  extraordinary  result.  When  the 
bill  was  given  up  it  wasa  security  for  nothing.  It  was  jnere_ 
waste  paper.  It  was  dead  in  law,  as  the  plaintiffs  must  have 
known.  Yet  it  is  contended  that  the  document  by  being  handed 
to  the  plaintiffs  acquired  a  new  lease  of  life,  and  became  a  nego- 
tiable instrument.  The  plaintiffs_jobtajned_no JHQrej-ight  against 
the  defendants  than  Bischoffswerder  had :  and  that_was  none  at 
all  The  only  difficulty  in  the  case  has  been  caused  by  some 
uncertainty  as  to  what  were  the  actual  findings  of  the  County 
Court  judge.     I  agree  that  the  appeal  must  be  allowed. 

Cozens-Hardy,  L.J.  I  am  of  the  same  opinion.  Many 
interesting  points  have  been  raised,  but  on  the  actual  facts  of  the 
case  I  see  no  great  difficulty.  The  ^oj^itorsjiad _ allien  on  their 
client's  interest  in  the  bill,  but  when  they  got,  possession  of  the, 
bill_  Bischoffswerder  had  no  rights  against  the  defendants.  The 
document  had  ceased  to  be  a  real  bilk  It  was  recovered  by 
Bischofr^werHer  in  his  action  against  Lewis  for  the  very  purpose 
of  preventing  its  being  negotiated.  The  plaintiffs  are  in  no  better 
position  than  Bischoffswerder,  who  had  no  rights  on  the  bill 
against  the  defendants.  It  is  unnecessary  to  give  my  opinion  on 
what  the  rights  of  the  plaintiffs  might  have  been  if  the  bill  had 
not  been  overdue  when  they  got  possession  of  it.        i^_  *~*\- 

Appeal  allowed. 


Walton  v.  Mascall  207 

Section  V. — Contract  of  Primary  Parties. 

CONTRACT  OF  THE  MAKER.  §  62. 

Walton  v.  Mascall  (1844),  13  M.  &  W.  452. 

This  was  an  action  on  an  agreement  in  writing,  whereby  the 
defendant  in  consideration  that  the  plaintiff  would  accept  the 
promissory  note  of  one  Johnson,  payable  six  months  after  date, 
for  a  debt  due  from  Johnson,  guarantied  and  undertook  to  pay 
the  amount  to  the  plaintiff,  provided  the  note  was  not  duly  hon- 
oured and  paid  by  Johnson  at  maturity. 

The  defendant,  being  under  terms  to  plead  issuably,  pleaded 
a  plea  denying  presentment  to  Johnson,  and  a  plea  denying  notice 
of  the  dishonour  of  the  note  to  him  the  defendant. 

Pollock,  C.B.  I  am  of  opinion  that  the  plaintiff  is  entitled 
to  the  judgment  of  the  Court.  With  respect  to  the  last  objection, 
the  declaration  shows  expressly,  not  only  that  the  plaintiff  did 
give  time  by  receiving  the  note,  but  that  he  took  it  under  circum- 
stances which  compelled  him  to  give  time.  The  case  of  Kearslake 
v.  Morgan,  5  T.  R.  513,  establishes,  that  a  creditor  who  receives 
a  negotiable  instrument  "for  and  on  account  of"  his  debt  is  taken 
to  have  received  it  in  present  satisfaction,  and  the  receipt  of  it 
^operates  as  a  suspension  of  the  remedy  upon  the  debt.  As  to  the 
other  question,  it  turns  a  good  deal  upon  what  the  parties  are 
to  be  taken  to  have  meant  by  the  words  "duly  honoured  and 
paid" ;  and  it  seems  to  me  that  those  words,  if  they  be  any  thing 
more  than  mere  tautology,  must  mean,  honoured  by  being  paid  on 
the  day  when  the  note  became  due,  or  paid  at  any  time  afterwards. 
I  cannot  help  thinking  that  the  word  "honoured"  meant  that  the 
note  should  be  presented  at  any  time,  and,  if  paid  at  any  time, 
then  the  defendant  should  be  discharged  from  liability.  The  real 
question  we  have  to  decide  is,  whether  the  averment  of  a  request 
to  pay  has  a  different  meaning  in  a  declaration  against  the  maker 
of  a  note,  and  in  a  declaration  against  a  guarantor  for  the  maker. 
It  seems  to  me  that  it  means  the  same  thing  in  both  cases ;  it 
would  lead  to  much  inconvenience  to  hold  the  contrary.  Now, 
against  the  maker  of  the  note,  that  allegation  would  be  mere  form  : 
it  must  be  sufficient  to  say  that  he  had  not  paid  the  sum  of  money 
in  the  note  specified  according  to  the  tenor  and  effect  thereof. 


208  Contract  of  the  Maker 

And  if  that  would  be  sufficient  as  against  him,  it  must  be  equally 
so  against  the  guarantor.  The  real  contract  is,  that  the  makers 
of  the  note  shall  pay  it  according_to_its  tenor_and  effect :  and  it  is 
clear_that_they  are  bound  to  find  out  the  holder_and^  pay  him  the 
amount,  when  the  note  becomes  due.  It  appears  to  me,  therefore, 
that  a:_j)resentment  and  request  are  immaterial ;  and  that  our 
judgment  must  be  for  the  plaintiff. 

Parke,  B.  I  am  of  the  same  opinion.  The  first  question 
which  arises  in  this  case  is  as  to  the  validity  of  the  plea.  The 
declaration  is  on  a  guarantie,  which  states  that,  in  consideration 
that  the  plaintiff  would  receive  the  promissory  note  of  two  per- 
sons therein  mentioned,  and  thereby  give  time  for  the  payment  of 
a  debt  due  from  one  of  those  persons,  the  defendant  promised  to 
pay  the  plaintiff  the  amount  of  the  debt,  if  the  note  were  not 
''duly  honoured  and  paid."  The  declaration  then  avers,  that, 
before  the  commencement  of  the  suit,  the  note  became  due  and 
payable  according  to  its  tenor  and  effect,  and  that  the  makers, 
although  requested  so  to  do,  have  not  paid  it,  of  which  the  defend- 
ant had  notice.  The  plea  traverses  the  allegation  of  the  request 
to  pay ;  and  to  that  there  is  a  general  demurrer.  Now,  it  is  clear 
that  a  request  for  the  payment  of  a  debt  is  quite  immaterial,  unless 
the  parties  to  the  contract  have  stipulated  that  it  shall  be  made : 
if  they  have  not,  the  law  requires  no  notice  or  request ;  but  the 
debtor  is  bound  to  find  out  the  creditor  and  pay  him  the  debt 
when  due.  It  is  clear,  therefore,  that  the  defendant  was  bound 
to  pay  the  amount  of  the  promissory  note  when  it  had  become  due 
and  was  dishonoured,  unless  there  was  some  condition  precedent 
to  be  performed  by  the  plaintiff,  which  has  not  been  performed. 
It  is  argued,  that  this  condition  precedent  is  that  the  note  shall 
be  presented  for  payment  when  due.  But  it  seems  to  me  that  the 
words  "duly  honoured  and  paid"  are  merely  tautologous,  and  mean 
simply  that  the  note  shall  be  paid  when  it  becomes  due.  What  I 
am  reported  to  have  said  in  the  case  of  Lezvis  v.  Gompertz,  when 
taken  in  connexion  with  the  facts  of  that  case,  I  hold  to  be  per- 
fectly correct.  There  can  be  no  doubt  that  a  mercantile  man, 
reading  the  notice  of  dishonour  which  was  given  in  that  case, 
would  necessarily  infer  that  the  bill  had  been  duly  presented  for 
payment  when  it  became  due.  But  no  request  or  presentment  is 
necessary  to  charge  the  acceptor  of  a  bill  or  the  maker  of  a  note ; 
he  is  bound  to  pay  it  at  maturity,  and  to  find  out  the  holder  for 
that  purpose.  Upon  this  contract  of  guarantie,  therefore,  it  seems 
to  me  that  the  word  "honoured"  means  no  more  than  the  words 
"duly  paid,"  and  that,  inasmuch  as  this  note  has  not  been  paidr 


GUMZ    V.    GlEGLING  209 

the  defendant  is  chargeable.  With  respect  to  the  other  point,  the 
giving  of  a  negotiable  security  for  and  on  account  of  a  debt 
operates  prima  facie  to  suspend  payment  of  the  debt  until  it 
becomes  due.  I  think  the  declaration  is  perfectly  sufficient,  and 
that  the  plaintiff  is  entitled  to  judgment. 
Gurney,  B.,  and  Rolfe,  B.,  concurred. 

Judgment  for  the  plaintiff. 


Gumz  v.  Giegling  (1896),  108  Mich.  295. 

Error  to  Manistee.     McMahon,  J. 

Assumpsit  by  Rudolph  Gumz  and  others,  as  copartners,  doing 
business  under  the  firm  name  of  R.  Gumz  &  Co.,  against  Henry 
J.  Giegling  and  Cornelius  A.  Waal,  on  a  promissory  note.  From 
a  judgment  for  plaintiffs  on  verdict  directed  by  the  court,  defend- 
ant Waal  brings  error.     Affirmed. 

This  suit  was  brought  upon  a  promissory  note  for  $700 
dated  August  14,  1893,  payable  to  the  order  of  R.  Gumz  &  Co., 
one  year  from  date,  indorsed  by  defendant  Waal.  The  defendant 
Waal  pleaded  the  general  issue,  with  notice  that  the  note  was 
given  for  a  prior  indebtedness  of  defendant  Giegling;  that  Waal, 
when  applied  to  by  plaintiffs  to  indorse  the  note,  refused  to  do 
so,  and  was  induced  to  indorse  the  same  on  the  representation 
of  plaintiffs  that  his  signature  was  to  be  a  matter  of  form,  and 
not  for  the  purpose  of  creating  any  liability  on  his  part,  but  was 
to  be  used  only  to  enable  them  to  have  an  additional  argument 
and  lever  to  use  upon  Giegling  to  induce  him  to  pay  the  note; 
and  that  plaintiffs  promised  that  no  claim  or  demand  should  be 
made  on  him  for  payment,  and  that  his  signature  should  not  be 
considered  as  creating  any  liability.  At  the  conclusion  of  the 
proofs,  the  court  directed  a  verdict  in  plaintiffs'  favor. 

George  L.  Hillikcr,  for  appellant. 
Dovel  &  Smith,  for  appallees. 

Grant,  J.  (after  stating  the  facts).  Plaintiffs  had  sold  meat 
to  defendant  Giegling,  who  kept  a  meat  shop  in  Manistee.  The 
account  was  an  open  one,  and  had  been  running  between  four  and 
five  months  previous  to  the  date  of  the  note.  They  refused  to 
sell  him  any  more  goods  unless  the  account  was  paid  or  secured. 
Giegling  was  unable  to  pay,  and  Mr.  Schaaf,  plaintiffs'  agent, 


210  Admissions  of  the  Maker 

asked  him  to  give  a  note  with  an  indorsement.  Mr.  Giegling 
suggested  that  they  see  defendant  Waal,  and  that  he  might  indorse 
a  note  for  him.  The  two  went  together  to  Mr.  Waal's  office. 
Mr.  Waal  gave  evidence  to  sustain  the  facts  set  up  in  his  notice. 
It,  however,  conclusively  appears  from  his  own  testimony,  as 
well  as  that  of  Mr.  Schaaf  and  Mr.  Giegling,  that  all  the  con- 
versation upon  which  he  relies  as  a  defense  occurred  before  the 
note  was  made  out  and  signed.  It  is  therefore  sought  to  vary 
the  terms  of  a  plain  written  contract  by  parol  evidence  of  what 
took  place  before  its  execution.  Mr.  Waal  himself  testified, 
"After  the  talk  was  had  all  around,  we  all  came  in  there ;  and  the 
note  was  drawn  up  and  signed  at  once,  and  handed  over  to  Mr. 
Schaaf."  Time  for  the  payment  was  extended  one  year.  Gieg- 
ling told  Mr.  Waal  that,  if  plaintiffs  got  this  note,  they  would 
sell  him  more  meat. 

Waal  was  not  the  payee  upon  the  note,  and  indorsed  it  before 
ftwas  uttered,  and  before  thejgay^hadjndorsed  it.  He  is  there- 
fore a~joint  maker.  Rothschild  v.  Grix,  31  Mich.  150.  If  the 
note  had  been  executed  by  Giegling,  and  delivered  to  plaintiffs^ 
and  they  had  afterwards  secured  the  indorsement  of  Waal,  with- 
out consideration,  this  defense  would  have  been  open  to  him, 
"under  the  authority  of  Kulenkamp  v.  Groff,  71  Mich.  675.  That 
decision,  however,  expressly  holds  that  under  the_jaf.ts  of  this, 
case  the  defense  cannot  be  sustained.  See,  also,  Aultman  &  Tay- 
lor Co.  v.  Gorham,  87  Mich.  233. 

The  learned  circuit  judge  was  correct  in  directing  a  verdict 
for  plaintiffs. 

The  other  Justices  concurred. 

The  judgment  is  affirmed. 


ADMISSIONS    OF   THE    MAKER.  §62. 

Wohlke  et  al.  v.  Kuhne  (1886),  109  Ind.  313. 

From  the  Allen  Superior  Court. 

IV.  G.  Colerick,  H.  Colerick,  W.  S.  Oppenheimer  and  P.  B. 
Colerick,  for  appellants. 

T.  E.  Ellison,  for  appellee. 

Elliott,  C.J.  Wohlke,  as  principal,  and  Trentman,  as 
surety,  executed  the  promissory  note  in  suit,  payable  to  the  order 
of  "f.  W.  Woollen,  Attorney  General." 


WOHLKE   ET   AL.    V.    KUHNE  211 

There  is  evidence  very  satisfactorily  showing  that  Kuhne 
became  the  owner  of  the  note  in  good  faith,  for  value,  and  with- 
out notice  of  any  defence,  before  its  maturity. 

We  incline  to  the  opinion  thatjhe  words  added  to  the  name 
of  the  payee  are  merely  descriptive  of  the  person,  and  can  not, 
in  any  event,  trammel  the  rights  of  a  bona  fide  holder.  Jackson 
School  Tp  v.  Farloiv,  75  Ind.  118;  Hayes  v.  Matthews,  63  Ind. 
412;  Hays  v.  Crutcher,  54  Ind.  260;  Means  v.  Swormstedt,  32 
Ind.  87  (2  Am.  R.  330)  ;  Kenyon  v.  Williams,  19  Ind.  44;  Hobbs 
v.  Cowden,  20  Ind.  310;  Shepherd  v.  Evans,  9  Ind.  260. 

We  are  clearly  of  the  opinion  that  the  appellants  are  not  in 
a  situation  to  dispute  the  authority  of  the  payee  to  accept  and 
transfer  the  note  executed  by  them.  Whatever  may  be  the  right 
of  the  State,  it  is  certain  these  appellants  can  not  successfully 
present  the  question  of  the  authority  of  T.'  W.  Woollen  to  take 
or  transfer  the  note  executed  to  him.  That  is  a  question  between 
him  and  the  State,  with  which  these  appellants  have  no  concern, 
for  they  have  executed  a  commercial  note,  fair  on  its  face  and 
complete  in  all  its  parts,  and  they  can  not  defeat  it  in  the  hands 
of  a  bona  fide  holder.    New  v.  Walker,  108  Ind.  365. 

The  makers  of  a  note  negotiable  under  the  law  merchant 
warrant  the  capacity  of  the  payee  to  transfer  it  in  the  usual  course 
of  business.  Mr.  Bigelow  thus  states  the  rule:  "The  execution 
of  a  negotiable  note  is  a_w_ajranty  of  the  existing  capacity  of  the 
pavee_to  endorse  the  paper."  Bigelow  Estop.  512.  Another 
author  says:  "The  person  to  whose  order  a  bill  or  note  is  made 
payable,  is  generally  vested  with  the  right  to  transfer  the  same 
by  endorsement ;  and  it  does  not  lie  with  the  maker  or  acceptor 
to  dispute  the  power  of  the  payee  to  endorse  and  transfer  the 
instrument.  By  making  the  note  or  accepting  the  bill,  and  issuing 
it,  the  maker  and  acceptor  assert  to  the  world  the  competency  of 
the  payee  to  negotiate  and  assign  the  paper;  and  they  are  not 
afterwards  permitted  to  gainsay  the  assertion  so  made."  Edwards 
Bills  and  Notes,  section  363.  An  English  author,  whose  work 
has  long  been  recognized  as  authority,  in  speaking  of  the  acceptor 
of  a  bill,  says :  "He  moreover  admits,  and  so  does  the  maker  of 
a  promissory  note,  the  then  capacity  of  the  payee,  to  whose  order 
the  bill  or  note  is  made  payable,  to  endorse."     Byles  Bills,  202. 

This  well  established  principle  rules  the  case  against  the 
appellants.  The  decision  in  Union  School  Tp.  v.  First  Nat' I 
Bank,  102  Ind.  464,  expresses  the  law  correctly  upon  the  case 
then  before  the  court,  but  it  has  no  application  to  such  a  case 
as  this. 


212  The  Contract  of  the  Acceptor 

The  only  error  in  the  instructions  is,  that  they  are  more 
favorable  to  the  appellants  than  the  law  warrants. 

We  are  inclined  to  think  that  the  objection  of  the  appellee, 
that,  as  the  complaint  on  which  the  case  was  tried  is  not  in  the 
record,  no  question  is  properly  presented,  is  well  taken,  but,  as 
the  merits  of  the  case  are  plain  and  decisive,  we  have  not  put 
our  decision  upon  that  objection. 

Judgment  affirmed. 

THE  CONTRACT  OF  THE  ACCEPTOR.  §  64. 

Raborg  et  al.  v.  Peyton  (1817),  2  Wheat.  (15  U.  S.)  385. 

Error  to  the  Circuit  Court  for  the  District  of  Columbia. 

Jones,  for  plaintiffs  in  error. 
Taylor,  for  defendant  in  error. 

Story,  J.,  delivered  the  opinion  of  the  court : 
This  is  an  action  of  debt  brought  against  the  defendant  in 
error,  as  acceptor  of  a  bill  of  exchange  by  the  plaintiffs  in  error 
as  indorsees.  The  declaration  alleges  that  the  bill  was  drawn, 
accepted,  and  indorsed,  for  value  received.  The  only  question  is, 
whether  debt  lies  in  such  a  case. 

The  general  principle  has  been  very  correctly  stated  by  Lord 
Chief  Baron  Comyn,  that  debt  lies  upon  every  express  contract 
to  pay  a  sum  certain :  and  he  adds,  also,  that  it  lies  though  there_ 
be  only  an  implied  contract,  (Com.  Dig.  debt,  a.  8,  a.  9.)  But  it 
has  been  supposed  that  this  principle  does  not  apply  to  an  action 
on  a  bill  of  exchange,  even  where  the  suit  is  brought  by  the  payee 
against  the  acceptor,  and  a  fortiori  not  where  it  is  brought  by  the 
indorsee.  It  is  admitted  that  in  Hardres,  485,  the  court  held  that 
debt  does  not  lie  by  the  payee  of  a  bill  of  exchange  against  the 
acceptor.  The  reasons  given  for  this  opinion  were,  _first,  that 
there  is  no  privity  of  contract  between  the  parties;  and,  second, 
that  an  acceptance  is  only  in  the  nature  of  a  collateral  promise 
or  engagement  to  pay  the  debt  of  another,  which  does  not  create 
a  duty.  It  is  very  difficult  to  perceive  how  it  can  be  correctly 
affirmed  that  there  is  no  privity  of  contract  between  the  payee 
and  acceptor.  There  is,  in  the  very  nature  of  the  engagement,  a 
direct  and  immediate  contract  between  them.  The  consideration 
may  not  always,  although  it  frequently  does,  arise  between  them ; 


Raborg  et  al.  v.  Peyton  213 

but  privity  of  contract  may  exist  if  there  be  an  express  contract, 
although  the  consideration  of  the  contract  originated  aliunde. 
Besides,  if  one  person  deliver  money  to  another  for  the  use  of  a 
third  person,  it  has  been  settled  that  such  a  privity  exists  that  the 
latter  may  maintain  an  action  of  debt  against  the  bailee.  (Harris 
v.  De  Bervoir,  Cro.  Jac.  687.)  And  it  is  clear  that  an  acceptance 
is  evidence  of  money  had  and  received  by  the  acceptor  for  the  use 
of  the  holder.  (Tatlock  v.  Harris,  3  T.  R.  174;  Vcre  v.  Lewis, 
3'T.  R.  182.)  It  is  also  evidence  of  money  paid  by  the  holder 
to  the  use  of  the  acceptor.  (Ibid,  and  Bailey  on  Bills,  164,  3d 
edition.)  Ajjrivity  of  contract,  and  a  duty  to  pay,  would  jeem, 
Jn_such  case,  to  be  completely  established  j^and  wherever  the  com- 
mon law  raises  a  duty,  debtjies.  The  other  reason  would  seem 
not  better  founded.  An  acceptance  is  not  a  collateral  engagement 
to  pay  the  debt  of  another:  it  is  an  ahsolnre  engagement  to  pay 
the  money  to  the  holder  of  the  bill ;  and  the  engagements  of  all 
the  other  parties  are  merely  collateral.  Prima  facie,  every  accept- 
ance^ affords  a  presumption  of  funds  of  the  drawer  in  the  hands 
ofjhe_acceptor,  and  is,  of  itself,  an  express  appropriation  of  those, 
funds  for  the  use  of  the  holder.  The  case  may,  indeed,  be  other- 
wise ;  and  then  the  acceptor,  in  fact,  pays  the  debt  of  the  drawer ; 
but  as  between  himself  and  the  payee  it  is  not  a  collateral,  but  an 
original  and  direct  undertaking.  The  payee  accepts  the  acceptor 
as  his  debtor,  and  he  cannot  resort  to  the  drawer  but  upon  a 
failure  of  due  payment  of  the  bill.  The  engagement  of  the 
drawer,  therefore,  may  more  properly  be  termed  collateral.  Yet 
it  has  been  held  that  debt  will  lie  in  favor  of  a  payee  against  the 
drawer  in  case  of  non-payment  by  the  acceptor.  (Hard's  case, 
Salk.,  23 ;  Hodges  v.  Steward,  Skinn.  346 ;  and  see  Bishop  v. 
Young,  2  Bos.  &  Pull.  78.) 

The  reasons,  then,  assigned  for  the  decisions  in  Hardres  are 
not  satisfactory;  and  it  deserves  consideration  that  it  was  made 
at  a  time  when  the  principles  respecting  mercantile  contracts  were 
not  generally  understood. 

The  old  doctrine  upon  this  subject  has  been  very  considerably 
shaken  in  modern  times.  An  indebitatus  assumpsit  will  now  lie 
in  favor  of  the  payee  against  the  acceptor ;  and  it  is  generally  true 
that  where  such  an  action  lies,  debt  will  lie.  And  a  still  stronger 
case  is,  that  an  acceptance  is  good  evidence  on  a  count  upon  an 
msimul  computassent  (Israel  v.  Douglas,  1  H.  Bl.  239),  which 
can  only  be  upon  the  footing  of  a  privity  of  contract. 

But  the  most  important  case  is  that  of  Bishop  v.  Young  (2 
Bos.  &  Pull.  78).     It  was  there  held,  in  opposition  to  what  was 


214  The  Contract  of  the  Acceptor 

supposed  to  have  been  the  doctrine  of  former  cases,  that  debt 
would  lie  by  the  payee  of  a_ngte_against  the  maker,  where  the  note 
wasexpressed  to  be  for  value  received.  That  decision  was  given 
with  measured  caution,  and  the  court  expressly  declined  to  give 
any  opinion  upon  any  but  the  case  in  judgment.  The  case  in 
Hardres  was  there  discussed,  and  although  its  reasoning  was  not 
impugned,  an  authoritative  weight  was  not  attempted  to  be  given 
to  it.  In  general,  the  legal  predicament  of  the  maker  of  a  note 
is  like  that  of  the  acceptor  of  a  bill.  Each  is  liable  to  the  payee 
for  the  payment  of  the  note  or  bill  in  the  first  instance ;  and  after 
indorsement,  each  bears  the  same  liabilities.  And  if  an  action  of 
debt  will  lie  in  favor  of  the  payee  of  a  note  against  the  maker, 
it  is  not  easy  to  perceive  any  sound  principle  upon  which  it  ought 
to  be  denied  against  an  acceptor  of  a  bill.  The  acceptance  of  a 
bill  is  just  as  much  an  admission  of  a  debt  between  the  immediate 
parties  as  the  drawing  of  a  note. 

The  case  has  been  thus  far  considered  as  if  the  action  were 
brought  by  the  payee  against  the  acceptor.  And  this  certainly 
presents  the  strongest  view  in  favor  of  the  argument.  But  in 
point  of  law  every  subsequent  holder,  in  respect  to  the  acceptor 
of  a  bill,  and  the  maker  of  a  note,  stands  in  the  same  predicamenT 
'aTYhe^^payee^  An  acceptance  is  as  much  evidence  of  money  had 
and  TeceTveTby  the  acceptor  to  the  use  of  such  holder,  and  of 
money  paid  by  such  holder  for  the  use  of  the  acceptor,  as  if  he 
were  the  payee.  (3  T.  R.  172;  Id.,  184,  Grant  v.  Vaughan,  3 
Burr.  1515.) 

Upon  the  whole,  we  do  not  think  that  the  authority  in 
Hardres  can  be  sustained  upon  principle;  and  we  see  no  incon- 
venience in  adopting  a  rule  more  consonant  to  the  just  right  of 
the  parties  as  recognized  in  modern  times.  In  so  doing,  we  apply 
the  well-settled  doctrine  that  debt  lies  in  every  case  where  the 
common  law  creates  a  duty  for  the  payment  of  money,  and 
in  every  case  where  there  is  an  express  contract  for  the  payment 
ofrnoney!  We  are  therefore  of  opinion  that  debt  lies  upon  a  bill 
of  exchange  by  an  indorsee  of  the  bill  against"The"acceptor,  when 
ft  is  expresse"ono^bT"for  value  received^  The  case  at  bar  is  sornF" 
what  strongTrTToFYhe  declaration  expressly  avers  that  the  bill 
was  drawn,  indorsed,  and  accepted  for  value  received,  and  the 
demurrer  admits  the  truth  of  the  averment. 

This  opinion  must  be  certified  to  the  Circuit  Court  for  the 
District  of  Columbia. 

From  the  view  which  has  been  taken  of  the  case  it  is  unneces- 
sary to  consider  whether  the  statute  of  Virginia  applies  to  it  or 
not.  Certificate  accordingly. 


A^cr^-   $£-*/w^ 


Fort  Dearborn  Nat.  Bank  v.  Carter  Co.  215 


Fort  Dearborn  Nat.  Bank  v.  Carter,  etc.,  Co.   (i8po),  152 

Mass.  34. 

Contract  against  the  acceptor  of  a  bill  of  exchange  for  $625. 
Trial  in  the  Superior  Court,  without  a  jury,  before  Mason,  J., 
who  allowed  a  bill  of  exceptions  in  substance  as  follows : 

The  plaintiff  is  a  national  bank,  having  its  usual  place  of 
business  in  Chicago,  where  also  the  Clark  &  Longley  Company, 
an  Illinois  corporation,  has  its  usual  place  of  business.  The 
defendant  is  a  Massachusetts  corporation,  having  its  place  of 
business  in  Boston.  Before  January  1,  1889,  the  defendant  had 
sold  merchandise  to  the  Clark  &  Longley  Company,  and  on  Jan- 
uary 17,  1889,  the  Clark  &  Longley  Company  was  indebted  to 
the  defendant  in  the  sum  of  about  $1,400,  for  merchandise  pre- 
viously sold  and  delivered.  On  January  10,  1889,  the  Clark  & 
Longley  Company  wrote,  requesting  the  defendant  to  accept  a 
draft  for  its  accommodation,  which  request  the  defendant  refused. 
On  January  17,  the  Clark  &  Longley  Company  again  wrote  to 
the  defendant,  saying  that  it  had  been  obliged  to  pay  unusually 
heavy  bills  for  the  months  of  November  and  December;  that  it 
regretted  that  it  had  been  obliged  to  make  drafts  upon  the  defend- 
ant so  frequently  of  late ;  that  its  collections  had  been  slow,  but 
were  much  easier ;  that  it  would  not  need  to  trouble  the  defendant 
after  that  day ;  and  requested  the  acceptance  of  a  draft  for  $625 
for  its  accommodation,  which  it  had  drawn  upon  the  defendant. 
The  defendant  had  within  a  short  time  previously  accepted  and 
paid  several  accommodation  drafts  for  the  Clark  &  Longley 
Company,  which,  like  this,  had  been  discounted  before  acceptance. 

The  Clark  &  Longley  Company  presented  this  draft  for  $625 
to  the  plaintiff,  in  Chicago,  on  January  17;  and  the  plaintiff 
placed  the  amount  of  the  draft,  less  the  discount  thereof,  to  its 
credit.  The  amount  thereof  was  on  the  same  day  drawn  out  by 
check  by  the  Clark  &  Longley  Company ;  and  the  draft  was 
forwarded,  through  the  Freeman's  National  Bank  of  Boston,  for 
acceptance  and  collection.  The  draft  was  presented  to  the 
defendant  for  acceptance  on  January  19,  at  its  place  of  business, 
and  about  3  o'clock  p.  m.  on  January  21  the  defendant  accepted 
the  draft,  dating  the  acceptance  January  19,  1889,  and  relying 
upon  the  representations  contained  in  the  letter  of  the  Clark  & 
Longley  Company  of  January  17,  1889.  After  4  o'clock  p.  m.  of 
January  21,  the  Clark  &  Longley  Company  suspended,  and  con- 
fessed judgment  to  the  plaintiff  in  the  sum  of  $22,000,  which  was 


216  The  Contract  of  the  Acceptor 

intended  to  cover  certain  indebtedness  from  the  Clark  &  Longley 
Company  to  the  plaintiff,  but  did  not  cover  all  of  the  plaintiff's 
claims,  and  did  not  cover  the  draft  for  $625.  On  the  same  day 
an  execution  issued  upon  this  judgment,  and  the  plaintiff  levied 
upon  the  property  of  the  Clark  &  Longley  Company.  On  the 
morning  of  January  22  the  defendant  first  learned  by  telegram 
from  Chicago  that  the  Clark  &  Longley  Company  had  suspended, 
and  had  confessed  judgment  to  the  plaintiff.  The  treasurer  of 
the  defendant  corporation  at  once  went  to  the  Freeman's  National 
Bank,  where  the  draft  was  then  held  awaiting  collection  at  matu- 
rity, and  asked  the  cashier  to  be  permitted  to  cancel  and  with- 
draw the  defendant's  acceptance  of  the  draft.  The  cashier  of  the 
bank  refused  to  permit  the  treasurer  to  cancel  and  withdraw  the 
acceptance,  but  at  his  request  telegraphed  to  the  plaintiff  that, 
although  the  draft  had  been  accepted,  it  would  not  be  paid  at 
maturity.  This  telegram  was  the  first  intimation  the  plaintiff  had 
received  that  the  draft  had  been  accepted,  and  it  made  no  advance 
to  the  Clark  &  Longley  Company  on  account  of  the  draft  after 
it  had  been  forwarded  to  the  Freeman's  National  Bank.  The 
defendant  had  never  promised  either  the  Clark  &  Longley  Com- 
pany or  the  plaintiff  to  accept  this  draft.  The  plaintiff  did  not 
know  that  it  was  to  be  an  accommodation  acceptance,  but  believed 
that  the  draft  was  a  just  claim  of  the  Clark  &  Longley  Company 
against  the  defendant. 

The  defendant  requested  the  judge  to  rule  as  follows : 

"1.  Upon  the  evidence  in  this  case,  there  was  no  considera- 
tion for  the  defendant's  acceptance  of  the  draft  declared  on. 

"2.  The  plaintiff's  action  cannot  be  maintained  unless  there 
was  a  valuable  consideration  for  the  defendant's  acceptance. 

"3.  If  the  defendant  accepted  the  draft  without  consideration 
and  for  the  accommodation  of  the  drawer,  and  relying  on  the 
drawer's  representation  that  it  was  solvent  and  its  affairs  pros- 
perous, and  in  ignorance  of  the  fact  that  the  drawer  was  insol- 
vent, and  had  after  the  draft  was  drawn  and  before  presentment 
confessed  judgment  to  the  plaintiff,  the  defendant  could  revoke 
its  acceptance,  unless  the  plaintiff  had  after  the  acceptance  and 
before  notice  of  the  defendant's  revocation  made  an  advance  on 
the  draft  to  the  drawer. 

"4.  The  defendant  could  revoke  its  acceptance  at  any  time 
before  notice  of  its  acceptance  had  been  given  to  the  plaintiff." 

The  judge  refused  so  to  rule  in  terms,  but  ruled  as  follows : 

"1.  Upon  the  evidence,  there  was  no  consideration  as  between 
the  drawer  and  drawee,  and  no  new  consideration  as  between 


Fort  Dearborn  Nat.  Bank  v.  Carter  Co.  217 

the  plaintiff  and  any  party  to  the  bill  at  or  subsequent  to  the 
acceptance,  but  prior  to  and  at  the  time  of  the  acceptance  the 
plaintiff  was  a  bona  fide  holder  for  value,  and  want  of  consid- 
eration as  between  drawer  and  drawee  does  not  prevent  its 
recovery. 

"2.  The  defendant  could  revoke  its  acceptance  at  any  time 
before  the  communication  of  such  acceptance  to  the  plaintiff  or 
to  the  plaintiff's  agent,  but  could  not  revoke  the  acceptance  after 
delivering  the  same  to  the  Freeman's  National  Bank,  the  agent 
of  the  holder." 

The  judge  found  for  the  plaintiff;  and  the  defendant  alleged 
exceptions. 

IV.  B.  French,  for  the  defendant. 
W.  A.  Knowlton,  for  the  plaintiff. 

Field,  J.  It  is  clear  that  the  first  ruling  made  by  the  court 
is  correct,  and  that  the  first  and  second  rulings  requested  were 
rightly  refused.  (Arpin  v.  Owens,  140  Mass.  144;  Heuertematte 
v.  Morris,  101  N.  Y.  63.) 

When  the  draft  with  the  defendant's  acceptance  upon  it  was 
delivered  by  the  defendant  to  the  Freeman's  National  Bank, 
yyjrich_was  the  agent  of  the  plaintiff,  the  contract  of  acceptance 
between  the  plaintiff  and  the  defendant  became  complete,  and 
the  acceptance  could  not  after  that  be  revoked  unless  the  defend- 
ant had  the  right  to  rescind  the  contract.  The  second  ruling, 
therefore,  is  correct,  and  the  fourth  ruling  requested  was  rightly 
refused,  if  these  rulings  relate  to  the  revocation  as  distinguished 
from  a  rescission. 

The  third  ruling  requested  suggests  that  possibly  the  defend- 
ant's counsel  had  it  in  mind  to  contend  that  the  letter  of  the 
17th  of  January  from  the  Clark  &  Longley  Company  to  the 
defendant  corporation,  upon  which  it  relied  in  accepting  the  draft, 
contained  a  representation  that  the  company  was  solvent;  that 
this  representation  was  false;  and  that  therefore,  when  the 
defendant  discovered  that  the  representation  was  false,  it  had 
the  right  to  rescind  the  contract  of  acceptance,  unless  the  plain- 
tiff had  after  the  acceptance  "made  an  advance  on  the  draft  to 
the  drawer."  Although  the  Clark  &  Longley  Company  suspended 
payment  on  the  21st  of  January,  the  exceptions  do  not  state  that 
the  company  was  not  solvent  on  the  17th  of  January,  and  it  is 
doubtful  if  the  letter  can  be  construed  as  containing  any  positive 
representation  of  solvency,  assuming  that  its  contents  are  cor- 
rectly stated  in  the  bill  of  exceptions.    This  third  request,  more- 


218  The  Contract  of  the  Acceptor 

over,  does  not  distinctly  assume  that  the  defendant  was  deceived 
by  any  representations  which  the  drawer  made,  and  was  thereby 
induced  to  accept  the  draft.  We  have  some  doubt  whether  the 
judge,  who  tried  the  case  without  a  jury,  understood  that  any 
question  of  law  was  raised  concerning  the  right  of  the  defendant 
to  rescind  the  contract  of  acceptance  on  account  of  any  fraud- 
ulent misrepresentations  of  the  drawer  of  the  draft ;  still  we  will 
consider  the  question. 

Whatever  may  be  the  distinction  between  such  a  case  as  the 
Merchants'  National  Bank  v.  National  Bank  of  the  Common- 
wealth, 139  Mass.  513,  and  the  case  of  Merchants'  Ins.  Co.  v. 
Abbott,  131  Mass.  397,  it  is  manifest  that  the  making  of  a  con- 
tract, or  the  payment  of  money  under  a  mistake  of  fact,  as  these 
words  are  used  in  the  law,  is  not  always  followed  by  the  same 
consequences  as  the  making  of  a  contract,  or  the  payment  of 
money,  by  reason  of  the  fraudulent  misrepresentations  of  a  third 
person.  Certainly  the  general  rule  is,  that  a  contract  made 
between  two  persons  on  a  valuable  consideration  cannot  be 
rescinded  by  one  of  the  parties  on  the  ground  that  a  third  person, 
at  whose  request  the  party  entered  into  the  contract,  made  fraud- 
ulent misrepresentations  to  him  on  which  he  relied,  if  this  third 
person  was  not  an  agent  of  the  other  party,  and  the  other  party 
had  no  knowledge  of  the  fraud.  See  Fairbanks  v.  Snow,  145 
Mass.  153.  The  contract  of  acceptance  was  made  by  the  defend- 
ant with  the  plaintiff  on  what  the  law  considers  a  valuable 
consideration ;  namely,  the  consideration  paid  by  the  plaintiff  to 
the  Clark  &  Longley  Company  in  anticipation  of  the  acceptance. 
The  Clark  &  Longley  Company  in  inducing  the  defendant  to 
accept  the  draft  acted  on  its  own  account  and  for  its  own  ben- 
efit, and  the  plaintiff  is  innocent  of  any  knowledge  of  or  par- 
ticipation in  any  fraud  of  that  company.  There  are  practical 
reasons  of  great  weight  why  the  rule  we  have  stated  should  be 
applied  to  negotiable  paper.  ^Acceptors  of  bills  of  exchange 
should  not  be  permitted  to  vary  their  liability  from  that  which 
is  apparent  on  the  face  of  the  bills,  by  setting  up  against  bona_ 
T^Tiolders  for  value,  who  took  the  bills  before  maturity,  state- 
ments made  by  the  drawers  to  the  drawees  wTiereby  they  were 
induced  to  accept  the  bills ;  and  we  have  been  unable  to  find 
that  any  distinction  has  been  taken  in  this  respect  between 
holders  of  bills  who  took  them  before  acceptance  and  those  who 
took  them  afterwards. 

Exceptions  overruled. 


^W-0">-       V-*->~ V^wj  • 


Tucker  Manufacturing  Co.  v.  Fairbanks  ex.  al.        219 


X  Tucker  Mfg.  Co.  v.  Fairbanks  et  al.  {1867),  98  Mass.  101. 

See  also  §  22. 

Contract  against  David  Fairbanks  &  Co.  as  drawers  of  the 
following  bill  of  exchange : 

"$4,469.76.  "Boston,  March  23,  1866. 

"Two  months  after  date  pay  to  the  order  of  Messrs.  Hiram 
Tucker  &  Co.  four  thousand  four  hundred  and  sixty-nine  76/100 
dollars,  value  received,  and  charge  the  same  to  the  account  of 

"David  Fairbanks  &  Co., 
"Agts.  Piscataqua  F.  &  M.  Ins.  Co. 
"To  Piscataqua  F.  &  M.  Ins.  Co.,  So.  Berwick,  Me." 

Across  the  face  of  the  draft  was  written,  "Accepted  for  the 
Treasurer,  David  Fairbanks,  President;"  and  on  the  back, 
"Payable  in  Boston,  Hiram  Tucker  &  Co." 

Trial  by  jury  was  waived,  and  the  case  heard  by  Foster,  J., 
who  found  the  following  facts :  The  signatures  of  all  the  parties 
to  the  bill  were  proved  or  admitted.  It  was  actually  made  and 
delivered  to  the  officers  of  the  plaintiff  corporation,  and  accepted 
by  them  on  the  3d  of  April,  1866,  in  payment  and  satisfaction 
of  the  amount  of  a  loss  by  fire,  due  on  a  policy  of  insurance 
effected  by  Hiram  Tucker  &  Co.  in  the  Piscataqua  Fire  and 
Marine  Insurance  Company,  which  had  been  ascertained  on  the 
23d  of  March,  and  was  payable  sixty  days  afterwards,  and  had 
been  assigned  by  Hiram  Tucker  &  Co.  to  the  plaintiffs  on  the 
26th  of  March.  The  plaintiffs  had  full  knowledge  of  all  the 
circumstances  under  which  the  bill  was  made.  The  insurance 
company,  at  the  time  of  delivering  it,  took  from  the  plaintiffs' 
treasurer  this  receipt : 

"Piscataqua  Fire  and  Marine  Ins.  Co., 

"Treasurer's  Office, 
"$4,469.76.  "So.  Berwick,  Me.,  April  3,  1866. 

"Received  of  the  Piscatauqua  Fire  and  Marine  Insurance 
Company  forty-four  hundred  and  sixty-nine  and  76/100  dollars, 
in  full  for  loss  and  damage  to  my  property  by  fire  on  the  19th  of 
March,   1866,   insured  by  policy   No.    16,907  in  said  company. 

"Tucker  Manufacturing  Co. 
"R.  S.  Fay,  Treas." 

No  evidence  was  offered  of  any  fraud  attending  the  making 
of  the  bill.     The  defendants  offered  parol  evidence  tending  to 


220  The  Contract  of  the  Acceptor 

show  that  it  was  not  expected  or  intended  that  they  should  be 
liable  on  the  bill,  that  it  was  given  only  to  settle  the  loss,  and 
was  supposed  and  expected  by  both  parties  to  create  a  debt 
against  no  one  but  the  insurance  company.  But  the  judge 
excluded  such  evidence,  and  held  that  the  question  of  the  defend- 
ants' liability  must  be  determined  by  the  instrument  itself. 

The  insurance  company  were  a  corporation  established  by 
the  laws  of  Maine,  having  their  office  at  South  Berwick  in  that 
state.  The  bill  was  never  presented  to  them  there  for  acceptance, 
and  no  regular  notice  of  its  nonpayment  was  given  to  the  defend- 
ants. The  defendants  had  no  funds  in  the  hands  of  the  insurance 
company  when  the  bill  was  made  or  ever  afterwards.  It  was 
proved  that  the  draft  was  made  and  delivered  in  Boston  at  the 
office  of  the  defendants,  who  were  the  general  agents  of  the 
insurance  company,  and  one  of  them,  David  Fairbanks,  its  pres- 
ident, and  the  agent  appointed  to  receive  service  of  process  in 
Massachusetts,  under  the  Gen.  Sts.  c.  58,  §68;  that  at  the  time 
of  its  execution  one  of  the  defendants  was  asked  where  it  would 
be  paid,  and  replied  "in  Boston,"  and  requested  the  plaintiff  to 
keep  it  there  and  not  send  it  to  Maine  for  collection ;  that  before 
it  came  due  one  of  the  defendants  told  the  plaintiff  that  it  would 
not  be  paid  at  maturity,  but  he  hoped  it  would  be  paid  eventually ; 
that  on  the  last  day  of  grace  the  defendants  were  informed  by 
the  plaintiff  that  it  was  in  the  Union  Bank  in  Boston,  and  one 
of  them  answered  that  it  would  not  be  paid. 

Upon  these  facts  the  presiding  judge  found  that  due  present- 
ment and  notice  had  been  waived  by  the  defendants ;  and  reserved 
the  questions,  whether  the  facts  warranted  this  finding,  whether 
the  defendants  were  liable  personally  as  drawers  on  the  face  of 
the  bill,  and  whether  the  parol  evidence  offered  by  them  should 
have  been  received,  for  the  consideration  of  the  full  court,  accord- 
ing to  whose  opinion  judgment  was  to  be  entered  for  the  plaintiff, 
or  for  the  defendant,  or  a  new  trial  ordered. 

C.  Brotvne,  for  the  plaintiffs. 

H.  A.  Scudder,  for  the  defendants. 

Gray,  J.  1.  The  facts  proved  at  the  trial  were  amply  suffi- 
cient to  warrant  the  finding  that  presentment  for_acceptance  and 
notice  of  nonpayment  had  been  waived.  The  defendants  knew^ 
that  thp  hi11_wnii1rj_nnr  be  paid  at  maturity,  and  so  informed  the 
jglaintiff s ;  and  the  plaintiffs  had  the  right  to  rely  upon  the 
information  so  received  and  omit  a  useless  ceremony  which  could 
be  of  no  benefit  to  themselves  or  to  the  defendants.     {Brett  v. 


Tucker  Manufacturing  Co.  v.  Fairbanks  et  al.        221 

Levett,  13  East,  213;  Barker  v.  Parker,  6  Pick.  80;  Spencer  v. 
Harvey,  \y  Wend.  489.) 

2.  It  is  equally  clear  that  the  liability  of  the  defendants  as 
drawers  of  a  negotiable  instrument  must  be  determined  from  the 
instrument  itself.  This  is  too  well  settled  to  admit  of  discussion. 
There  is  no  distinction  in  this  respect  between  the  drawer  of  a 
bill  of  exchange  and  the  maker  of  a  promissory  note.  {Bank  of 
British  North  America  v.  Hooper,  5  Gray,  567 ;  Bass  v.  O'Brien, 
12  Gray,  481 ;  Slawson  v.  Loring,  5  Allen,  342;  Barlow  v.  Con- 
gregational Society  in  Lee,  8  Allen,  460;  Arnold  v.  Sprague,  34 
Verm.  402;  Met.  Con.  108.) 

3.  The  question  whether  the  defendants  are  liable  upon  the 
face  of  the  bill  requires  more  consideration.  The  difficulty  is 
not  in  ascertaining  the  general  principles  which  must  govern 
cases  of  this  nature,  but  in  applying  them  to  the  different  forms 
and  shades  of  expression  in  particular  instruments.  In  order  to 
exempt  an  agent  from  liability  upon  an  instrument  executed  by 
him  within  the  scope  of  his  agency,  he  must  not  only  name  his 
pripc ipal,  but  he  must  express  by  some  form  of  words  that  the 
writing  is  the  act  of  the  principal,  though  done  by  the  hand  of 
the  agent.  If  he  expresses  this,  the  principal  is  bound,  and  the 
agent  is  not.  But  a^  mere  description  of  the  general  relation  or 
office  which  the  person  signing  the  paper  holds  to  another  person_ 
or  to~i~corporation,  without  indicating  that  the  particular  signa- 
ture is  made  in  the  execution  of  the  office  and  agency r  is  not 
sufficient  to  charge  the  principal  or  to  exempt  the  agent  from 
personal  liability.  Amid  the  great  variety  of  language  which 
may  be  used  by  merchants  in  haste  or  thoughtlessness,  ignorant 
or  unmindful  of  legal  rules,  or  not  anticipating  the  importance 
of  holding  one  party  rather  than  the  other  responsible,  it  must 
often  happen  that  cases  fall  very  near  the  dividing  line ;  and,  in 
order  to  maintain  uniformity  of  decision,  it  is  necessary  for  the 
court  to  refer  to  the  cases  already  adjudicated,  especially  within 
its  own  jurisdiction. 

The  authority  which  at  first  sight  seems  most  strongly  to 
support  the  position  of  the  defendants  is  that  of  Ballon  v.  Talbot, 
16  Mass.  461,  in  which  a  note  signed  "Joseph  Talbot,  agent  for 
David  Perry,"  was  held  not  to  bind  Talbot  personally.  That 
case  has  since  been  recognized  and  followed  in  this  Common- 
wealth. (J efts  v.  York,  4  Cush.  372;  Page  v.  Wight,  14  Allen, 
182.)  But  the  important  and  effective  word  in  Ballon  v.  Talbot 
was  not  the  word  "agent,"  nor  the  name  of  the  principal,  but  the 
connecting  word  "for,"  which  might  indeed  indicate  merely  the 


22-  The  Contract  of  the  Acceptor 

relation  which  the  agent  held  to  the  principal ;  hut  which  was 
equally  apt  to  express  the  fact  that  the  act  was  done  in  behalf 
of  the  principal,  in  the  same  manner  as  if  the  words  had  been 
transposed  thus:  "For  David  Perry,  Joseph  Talbot,  agent." 
(See  Dcslandcs  v.  Gregory,  2  El.  &  El.  602.)  This  is  made  man- 
ifest by  considering  that  if  the  word  "agent"  had  been  wholly 
omitted,  and  the  form  of  the  signature  had  been  simply  "Joseph 
Talbot,  for  David  Perry,"  or  "For  David  Perry,  Joseph  Talbot," 
it  would  have  been  well  executed  as  the  contract  of  the  principal, 
even  if  it  had  been  under  seal,  and  of  course  not  less  so  in  the 
case  of  a  simple  contract.  (Long  v.  Colburn,  11  Mass.  97;  Emer- 
son v.  Providence  Hat  Manufacturing  Co.,  12  Mass.  237;  Musscy 
v.  Scott,  7  Cush.  215;  Met.  Con.  105,  no.) 

On  the  other  hand,  in  Hills  v.  Bannister,  8  Cowen,  31,  a  note 
signed  by  two  persons,  with  the  addition  "Trustees  of  Union 
Religious  Society,  Phelps,"  (Who  were  a  legal  corporation,)  was 
held  to  bind  the  signers  personally;  and  in  Barker  v.  Mechanic 
Insurance  Co.,  3  Wend.  94,  a  note  signed  "John  Franklin,  Pres- 
ident of  the  Mechanic  Fire  Insurance  Company,"  was  held  on 
demurrer  not  to  be  the  note  of  the  company,  although  alleged 
to  have  been  made  within  the  authority  of  the  president  and  the 
scope  of  the  legitimate  business  of  the  corporation ;  the  court 
saying:  "In  this  case,  there  is  an  averment  that  the  president 
was  lawfully  authorized ;  but  it  does  not  appear  that  he  acted 
under  that  authority ;  he  does  not  say  that  he  signs  for  the 
company;  he  describes  himself  as  president  of  the  company, 
but  to  conclude  the  company  by  his  acts  he  should  have  con- 
tracted in  their  name,  or  at  least  on  their  behalf."  The  variation 
between  the  words  "for"  and  "of"  seems  at  first  view  slight; 
but  in  the  connection  in  which  they  are  used  in  signatures  of 
this  kind  the  difference  is  substantial.  "Agent  of"  or  "president 
of"  a  corporation  named  simply  designates  a  personal  relation 
of  the  individual  to  the  corporation.  "Agent  for"  a  particular 
person  or  corporation  may  designate  either  the  general  relation 
which  the  person  signing  holds  to  another  party,  or  that  the 
particular  act  in  question  is  done  in  behalf  of  and  as  the  very 
contract  of  that  other ;  and  the  court,  if  such  is  manifestly  the 
intention  of  the  parties,  may  construe  the  words  in  the  latter 
sense.  But  even  "agent  for"  has  been  held  under  some  cir- 
cumstances a  mere  descriptio  persona  of  the  agent,  as  in 
De  Witt  v.  Walton,  5  Selden,  570,  in  which  the  name  following 
these  words  was  not  the  proper  name  of  the  principal,  but  the 
name  of  a  newspaper  which  the  agent  carried  on  in  the  principal's 


Tucker  Manufacturing  Co.  v.  Fairbanks  et.  al.        223 

behalf,  and  a  note  signed  "David  Hoyt,  agent  for  The  Church- 
man," was  held  to  be  the  note  of  Hoyt  and  not  of  his  principal ; 
and  in  Shattuck  v.  Eastman,  12  Allen,  369,  in  which  it  was  held 
that  a  paper  in  the  form  of  a  receipt,  signed  "Robert  Eastman, 
Agent  for  Ward  6,  Lowell,  Mass.,"  if  executed  under  such  cir- 
cumstances as  to  amount  to  a  contract,  might  be  binding  on  the 
agent  personally.  In  Fiske  v.  Eldridgc,  12  Gray,  474,  in  a  care- 
ful review  of  the  cases  by  Mr.  Justice  Dewey,  the  New  York- 
decisions  above  mentioned  were  quoted  with  approval,  and  a  note 
signed  "John  T.  Eldridge,  Trustee  of  Sullivan  Railroad,"  was 
held  to  be  the  personal  note  of  Eldridge.  In  Haverhill  Insurance 
Co.  v.  Newhall,  1  Allen,  130,  a  note  signed  "Cheever  Newhall, 
President  of  the  Dorchester  Avenue  Railroad  Company,"  was 
held  to  bind  Newhall  personally,  although  given  by  him  to  an 
insurance  company  (as  was  expressed  in  the  note  itself)  in  con- 
sideration of  a  policy  issued  to  the  railroad  corporation,  which  he 
was  in  fact  authorized  to  obtain  and  sign  the  note  for.  See  also 
Fullam  v.  West  Brookfield,  9  Allen,  1  ;  Morrell  v.  Codding,  4 
Allen,  403 ;  Tanner  v.  Christian,  4  El.  &  Bl.  591  ;  Parker  v.  Wins- 
low,  7  El.  &  Bl.  942 ;  Price  v.  Taylor,  5  H.  &  N.  540 ;  Bottomley 
v.  Fisher,  1  H.  &  C.  211. 

This  case  is  not  distinguishable  from  those  just  stated.  It 
differs  from  Ballon  v.  Talbot,  in  omitting  the  word  "for,"  (the 
only  evidence,  contained  in  the  note  there  sued  on,  that  it  was 
made  in  behalf  of  the  principal)  leaving  the  words  "Agts.  Pisca- 
taqua  F.  &  M.  Ins.  Co."  as  a  mere  description  of  the  persons 
signing  this  bill.  The  cases  of  Mann  v.  Chandler,  9  Mass.  335, 
Despatch  Line  of  Packets  v.  Bellamy  Manufacturing  Co.,  12  N. 
H.  205,  and  Johnson  v.  Smith,  21  Conn.  627,  cannot  avail  the 
defendants  against  the  latter  decisions  of  this  court.  See  12  Gray, 
476;  8  Allen,  461,  462.  The  name  of  the  principal  does  not 
appear  in  the  body  of  the  bill.  The  address  of  the  bill  to  the 
corporation  and  the  request  to  them  to  charge  the  amount  to  the 
account  of  the  drawers  have  certainly  no  tendency  to  show  that 
the  drawers  are  the  same  as  the  corporation,  the  drawees.  The, 
fact  that  the  bill  was  delivered  to  the  plaintiffs  by  the  insurance 
company,  as  shown  by  the  contemporaneous  receipt,  does  not 
make  it  the  less  the  promise  of  the  signers.  The  defendants  must 
therefore  be  held  personally  responsible  as  the  drawers  of  the  bill. 

Judgment  for  the 


224  Admissions  of  the  Acceptor 

admissions  of  the  acceptor.  §  64 — i. 

Nat.  Park  Bank  v.  Ninth  Nat.  Bank;  Same  v.  Fourth  Nat.  Bank 
{187 1),  46  N.  Y.  77,  7  Am.  Rep.  310. 

The  first  case  is  an  appeal  from  judgment  of  the  late  Gen- 
eral Term,  of  the  first  judicial  district,  reversing  order  of  Special 
Term  sustaining  demurrer  to  complaint,  and  also  judgment 
entered  upon  said  order. 

The  last  is  an  appeal  from  judgment  of  General  Term ;  New 
York  Common  Pleas,  affirming  judgment  of  Special  Term  of  that 
court  overruling  demurrer  to  complaint. 

The  complaint  in  the  first  case  states  in  substance,  that 
on  the  25th  March,  1867,  the  Ridgely  National  Bank,  of  Spring- 
field, Illinois,  drew  its  draft,  or  bill  of  exchange  on  plaintiff,  for 
the  sum  of  fourteen  dollars  and  twenty  cents,  payable  to  the  order 
of  Ely  Shirly,  and  delivered  the  same  to  the  payee.  That  after- 
ward the  amount  of  said  draft  was  fraudulently  changed  to  $6,- 
300.00,  and  the  name  of  the  payee  to  E.  G.  Fanchon,  Esq.  That 
the  name  of  Wm.  Ridgely,  cashier,  signed  to  said  draft  was 
erased,  and  afterward  re-written  by  the  person  making  the  eras- 
ure. That  the  same  was  then  discounted  by  the  Lexington 
National  Bank,  and  by  it  was  endorsed  to  defendant.  That  after- 
ward, and  on  or  about  April  12th,  1867,  defendant  presented  said 
draft  to  plaintiff,  and  said  plaintiff  paid  thereon  the  sum  of  $6,300. 
That  plaintiff  discovered  the  forgery  May  10th,  1867,  and  forth- 
with notified  defendant  thereof,  and  demanded  re-payment  of  said 
sum,  less  fourteen  dollars  and  twenty  cents,  which  was  refused. 
Defendant  demurs,  "that  the  complaint  does  not  state  facts  suffi- 
cient to  constitute  a  cause  of  action." 

In  the  last  case  the  facts  are  similar,  save  as  to  amount  and 
names. 

/.  H.  V.  Arnold,  for  appellant,  Ninth  Nat.  Bank. 
S.  K.  Miller,  for  appellant,  Fourth  Nat.  Bank. 
F.  C.  Barlow,  for  respondent. 

Allen,  J.  The  checks  paid  by  the  plaintiffs,  the  drawees, 
were  forgeries  throughout,  as  well  the  signatures,  as  the  bodies. 

The  name  of  the  signer,  the  cashier  of  the  Ridgely  Bank,  was 
not  the  genuine  signature  of  that  officer,  and  was  not  written  by 
his  authority.  The  fact  that  a  genuine  check  had  been  drawn, 
and  signed  by  the  proper  party,  upon  the  same  piece  of  paper, 
does  notaffect  the  character  of  the  instrument  in  its  altered,  and 


National  Park  Bank  v.  Ninth  National  Bank        225 

forged  condition.  The  forger,  by  skillfully  obliterating  the  gen- 
uine signature,  together  with  the  words  and  figures  indicating 
the  amount  payable  thereon,  effectually  destroyed  the  instrument, 
and  it  was  incapable  of  being  restored  to  its  original  condition, 
in  the  form  of  a  check,  and  made  available  for  any  purpose. 

It  was  but  a  blank  form  of  a  draft  or  bill,  and  the  act  of 
signing  the  name  of  the  cashier  as  drawer,  with  intent  to  utter  and 
pass  the  same  as  genuine,  was  a  crime,  and  the  signature  a  for- 
gery, whether  the  check  was  for  the  same,  or  a  different  amount 
from  that  for  which  the  original  and  genuine  bill  had  been  drawn. 

Whether  the  forger  used  the  same  paper  on  which  the  orig- 
inal instrument  had  been  written  and  signed,  and  manipulated  it 
to  suit  his  purposes,  or  made  and  forged  a  check  on  another,  and 
different  piece  of  paper  is  not  material,  so  long  as  the  signature 
of  the  drawer  was  counterfeit. 

The  drafts  paid  bv  the  plaintiff  were  not  merely  raised 
checks,  that  is,  forged  and  altered  by  the  obliteration  and  removal 
of  one  sum,  and  the  insertion  of  another,  but  were  forged  instru- 
ments in  every  sense. 

The  drafts  signed -by  the  cashier  are  not  in  existence  in  any 
form  as  drafts.  The  genuine  signature  was  wanting,  to  make  the 
instruments  the  checks  of  the  nominal  drawer,  for  any  amount. 
The  money  was  then  paid  by  the  plaintiff  upon  bills  drawn  upon 
it,  to  which  the  name  of  its  correspondent  had  been  forged. 

For  more  than  a  century  it  has  been  held  and  decided,  with- 
out question,  that  it  is  incumbent  upon  the  drawee  of  a  bill,  to  be 
satisfied  that  the  signature  of  the  drawer  is  genuine,  that  he  is 
presumed  to  know  the  handwriting  of  his  correspondent ;  and  if 
he  accepts  or  pavs  a  bill  to  which  the  drawer's  name  has  been 
forged,  he  is  bound  bv  the  act,  and  can  neither  repudiate  the 
acceptance  nor  recover  the  money  paid. 

The  doctrine  was  broached  by  Lord  Raymond  in  Jenys  v. 
Fawler  (2  Strange,  946),  the  chief  justice  strongly  inclining  to 
the  opinion,  that  even  actual  proof  of  forgery  of  the  name  of  the, 
drawer,  would  not  excuse  the  defendants  against  their  acceptance. 
In  1762  the  principle  was  flatly,  and  distinctly  decided  by  the 
Court  of  King's  Bench,  in  the  leading  case  of  Price  v.  Neal  (3 
Burrows,  1354),  which  was  an  action  to  recover  money,  paid  by 
the  drawee  to  the  holder  of  a  forged  bill.  Lord  Mansfield  stopped 
the  counsel  for  the  defendant,  saying  that  it  was  one  of  those 
cases  that  never  could  be  made  plainer  by  argument ;  that  it  was 
incumbent  on  the  plaintiff,  to  be  satisfied  that  the  bill  drawn 
upon  him  was  the  drawer's  hand,  before  he  accepted  and  paid  it, 


226  Admissions  of  the  Acceptor 

but  it  was  not  incumbent  for  the  defendant  to  inquire  into  it.  This 
case  has  been  followed  and  the  doctrine  applied,  almost  without 
question  or  criticism,  in  an  unbroken  series  of  cases,  from  that 
time  to  this,  and  it  has  been  distinctly  approved  in  very  many 
cases,  which  have  not  been  within  the  precise  range  of  the  principle 
decided.  (See  Archer  v.  Bank  of  England,  2  Doug.,  639;  Smith 
v.  Mercer,  6  Taunt.,  76;  Wilkinson  v.  Johnson,  3  B.  &  C,  428; 
Cook  v.  Masterman,  7  B.  &  C,  902 ;  Cooper  v.  Meyer,  10  B.  &  C, 
468;  Saunderson  v.  Coleman,  4  M.  &  G.,  209;  Smith  v.  Chester, 
1  D.  &  E.  R.,  655;  Bass  v.  Clive,  4  M.  &  S.,  15;  Bank  of  Com- 
merce v.  Union  Bank,  3  Comstock,  230;  Goddard  v.  Merchants' 
Bank,  4  Comstock,  149;  Canal  Bank  v.  Bank  of  Albany,  1  Hill, 
287.) 

Cases  have  been  distinguished  from  Price  v.  Neal,  and  its 
applicability  to  a  transfer  to  a  forged  instrument,  between  persons 
not  a  party  to  it,  has  not  been  extended  to  forgeries  of  indorse- 
ments or  handwriting  of  parties  to  negotiable  instruments,  other 
than  the  drawer.  But,  as  applied  to  the  case  of  a  bill  to  which 
the  signature  of  a  drawer  is  forged,  accepted  or  paid  by  the 
drawee,  its  authority  has  been  uniformly  and  fully  sustained,  and 
the  rule  extends  as  well  to  the  case  of  a  bill  paid  upon  present- 
ment, as  to  one  accepted  and  afterward  paid.  (Bank  of  St. 
Albans  v.  Farmers'  and  Mechanics'  Bank,  10  Vermont,  141 ;  Levy 
v.  Bank  of  the  U.  S.,  4  Dallas,  234;  Bank  of  U.  S.  v.  Bank  of 
Georgia,  10  Wheat.,  333;  Young  v.  Adams,  6  Mass.,  182;  Glou- 
cester Bank  v.  Bank  of  Salem,  17  Mass.  41.) 

A  rule  so  well  established,  and  so  firmly  rooted  and  grounded 
in  the  jurisprudence  of  the  country,  ought  not  to  be  overruled  or 
disregarded. 

It  has  become  a  rule  of  right  and  of  action  among  commer- 
cial and  business  men,  and  any  interference  with  it  would  be 
mischievous.  Judge  Ruggles  in  Goddard  v.  Merchants'  Bank, 
supra,  well  says,  "it  should  not  be  departed  from,  or  frittered 
away  by  exceptions  resting  on  slight  grounds,  and  cannot  be 
overruled,  without  overthrowing  valuable,  and  well  settled  prin- 
ciples of  commercial  law."  In  the  first  above  entitled  action,  the 
judgment  of  the  General  Term  should  be  reversed,  and  that  of 
Special  Term  affirmed,  and  judgment  absolute  for  the  defendant 
with  costs;  and  in  the  other,  the  Judgment  of  the  General  and 
Special  Term  should  be  reversed,  and  judgment  for  the  defendant 
with  costs. 

All  concur. 

Peckam,  J.,  not  voting.  Judgment  accordingly. 


V-^v 


First  Nat.  Bank  v.  Northwestern  Nat.  Bank         227 


First  Nat.  Bank  v.  Northwestern  Bank  (1894),  152  III.  296. 

Appeal  from  the  Appellate  Court  for  the  First  District; — 
heard  in  that  court  on  appeal  from  the  Superior  Court  of  Cook 
county;  the  Hon.  Elliott  Anthony,  Judge,  presiding. 

The  bank  checks  involved  in  this  suit  purported  to  be  drawn 
by  the  Central  Union  Telephone  Company  upon  the  Northwestern 
National  Bank  of  Chicago.  Four  of  these  checks  were  made 
payable  to  the  order  of  "F.  P.  Ross,  Manager,"  and  one  was 
drawn  payable  to  the  order  of  "C.  H.  Wilson,  A.  G.,  Supt." 
These  checks  were  received  by  appellant,  the  First  National  Bank, 
in  the  regular  course  of  business,  being  deposited  with  it  by  Cha- 
pin  &  Gore,  who  were  regular  depositors.  Appellant  endorsed 
them,  "Pay  through  Chicago  Clearing  House  only  to  First 
National  Bank,"  and  they  being  by  the  clearing  house  presented 
to  appellee,  were  paid  by  it.  Afterwards,  it  was  discovered  that 
the  signatures  of  the  maker,  the  telephone  company,  and  that  of 
the  payees,  Wilson  and  Ross,  were  forgeries.  Thereupon  the 
Northwestern  National  Bank  brought  this  suit  against  the  First 
National  Bank.  The  other  important  facts  are  stated  in  the 
opinion. 

Messrs.  Remy  &  Mann,  for  the  appellant. 
Mr.  Charles  M.  Sturges,  for  the  appellee. 

Mr.  Justice  Baker  delivered  the  opinion  of  the  court : 

In  this  action  of  assumpsit  brought  by  the  Northwestern 
National  Bank  of  Chicago,  against  the  First  National  Bank  of 
Chicago,  the  issues  were  tried  before  the  Superior  Court  of  Cook 
county  without  a  jury,  and  the  court  found  the  issues  for  che 
plaintiff,  and  assessed  its  damages  at  $2,454,  and  rendered  judg- 
ment therefor  against  the  defendant.  Upon  an  appeal  to  the 
Appellate  Court  for  the  First  District  the  judgment  was  in  all 
things  affirmed,  and  thereupon  the  First  National  Bank  of  Chi- 
cago prosecuted  this  further  appeal. 

(Omitting  questions  of  practice). 

It  may  be  well,  in  order  to  clearly  understand  the  nature  of 
the  case  upon  which  appellee  relies,  to  briefly  state  the  substance 
of  its  declaration.  The  declaration  contains  ten  counts,  nine  of 
which  are  special,  and  each  of  these  special  counts  describes  a 
different  instrument  in  writing,  and  the  tenth  count  is  a  common 
indebitatus  assumpsit  count  for  interest.     The  first  count  avers 


228  Admissions  of  the  Acceptor 

that  on  May  17,  1887,  "a  certain  person"  made  and  drew,  by  and 
under  the  name  and  style  of  "W,  S.  Chapman,  Treas.,"  a  certain 
draft  or  order,  in  writing,  for  the  payment  of  money,  commonly 
called  a  check  on  a  bank,  with  the  heading  "Central  Union  Tele- 
phone Company,"  and  said  check  being  numbered  with  the  number 
13,006,  and  caused  said  check  to  be  countersigned  by  and  under  the 
style  of  "Geo.  L.  Phillips,  Prest.,"  and  directed  said  check  to  the 
appellee,  and  thereby  requested  it  to  pay  $300  to  C.  H.  Wilson,  who 
was  described  therein  as  "C.  H.  Wilson,  A.  G.  Supt.,"  and  that 
afterwards  some  one  to  plaintiff  unknown,  intending  to  defraud  C. 
H.  Wilson,  and  without  the  consent,  knowledge  or  ratification  of 
Wilson,  and  without  the  knowledge  of  plaintiff,  forged  on  said 
check  the  name  of  "C.  H.  Wilson,  A.  G.  Supt.,"  and  caused  said 
check,  so  indorsed,  to  be  placed  in  the  hands  of  Chapin  &  Gore, 
who  in  turn  endorsed  it  "For  deposit  in  the  First  National  Bank 
to  the  credit  of  Chapin  &  Gore,"  and  delivered  it  to  the  appellant, 
who  in  turn  endorsed  it  "Pay  through  Chicago  Clearing  House 
only  to  First  National  Bank,"  and  through  said  clearing  house 
presented  said  check  to  appellee  for  payment,  and  thereby  vouched 
and  warranted  to  appellee  that  the  endorsement  of  C.  H.  Wilson 
on  said  check  was  the  genuine  endorsement  of  said  Wilson,  and 
that  appellee,  confiding  in  said  warranty  of  appellant,  and  in  con- 
sideration thereof,  and  being  ignorant  that  said  endorsement  was 
forged,  paid  said  check  to  appellant  and  took  up  the  check ;  that 
appellee  did  not  discover  the  fact  of  such  forgery  until  July  25, 
1887,  when  it  notified  appellant,  tendered  to  it  the  check,  and 
demanded  that  appellant  should  make  good  its  warranty,  and 
should  repay  to  appellee  the  amount  of  the  check,  by  means 
whereof  appellant  became  liable  to  pay,  promised  to  pay,  and 
afterwards  refused,  etc.  The  averments  of  the  second  count  are 
substantially  the  same  as  those  of  the  first  count,  except  that  the 
check  is  dated  May  31,  1887,  is  numbered  13,051,  and  is  for 
$250.  The  averments  of  the  third  count  are  substantially  the 
same  as  those  of  the  first  count,  except  that  the  check  is  dated 
June  13,  1887,  is  numbered  13,086,  and  is  for  $200.  The  aver- 
ments of  the  fourth  count  are  substantially  the  same  as  those  of 
the  first  count,  except  that  the  check  is  dated  June  13,  1887,  is 
numbered  13,087,  and  is  for  $200,  and  except,  further,  that  the 
count  contains  the  additional  averment  that  on  June  30,  1887, 
appellee  accepted  said  check  and  wrote  on  the  face  thereof  these 
words:  "Accepted  payable  through  Chicago  Clearing  House, 
June  30,  1887. — Northwestern  National  Bank. — Sheahan,  Teller." 
The  averments  of  the  fifth  count  are  substantially  the  same  as 


First  Nat.  Bank  v.  Northwestern  Nat.  Bank  229 

those  of  the  first  count,  except  that  the  check  is  dated  July  5,  1887, 
is  numbered  13,145,  and  is  for  $200,  and  except,  also,  that  there 
is  no  averment  that  it  is  countersigned  by  and  under  the  style 
of  "Geo.  L.  Phillips,  Prest."  The  averments  of  the  sixth  count 
are  substantially  the  same  as  those  of  the  first  count,  except  that 
the  payee  named  in  the  check  is  "F.  P.  Ross,  M'gr.,"  and  except 
that  the  check  is  dated  May  31,  1887,  is  numbered  13,049,  and  is 
for  $200.  The  seventh  count  is  the  same  as  the  sixth  count, 
except  that  date  of  check  is  May  1,  1887,  and  its  number  is  13,050, 
and  it  is  for  $300.10.  The  eighth  count  is  the  same  as  the  sixth 
count,  except  that  date  of  check  is  June  18,  1887,  and  its  number 
is  13,085,  and  it  is  for  $200.  The  ninth  count  is  the  same  as  the 
sixth  count,  except  that  date  of  check  is  July  5,  1887,  and  its 
number  is  13,147,  and  its  amount  is  $200,  and  except,  also,  that 
it  contains  an  additional  averment  that  on  July  13,  1887,  appellee 
accepted  said  check,  and  wrote  on  the  face  thereof:  "Accepted 
payable  through  Chicago  Clearing  House  July  13,  1887. — North- 
western Nat '1  Bank. — Sheahan,  Teller." 

The  only  plea  filed  to  the  declaration  was  that  of  the  general 
issue,  and  issue  was  joined  thereon.  But  at  the  trial  a  stipulation 
was  made  that  appellant  might,  under  that  plea,  introduce  evi- 
dence to  prove  that  the  checks  were  otherwise  forged,  prior  or  in 
addition  to  the  endorsements  alleged  to  have  been  forged,  and 
that  such  prior  and  other  forgeries  were  on  said  checks  when  they 
came  to  the  hands  of  appellant,  and  without  its  knowledge,  pro- 
vided the  court  should  hold  proof  of  such  matter  competent  as  a 
defense,  and  provided  appellee  might  introduce,  in  reply,  all  mat- 
ters in  evidence,  and  provided  the  rulings  of  the  court  admitting 
or  rejecting  such  evidence  should  be  subject  to  exception  by 
either  party,  other  than  on  the  point  of  its  admissibility  under  the 
pleadings. 

The  declaration  proceeds  upon  the  theory  that  it  is  imma- 
terial, as  between  the  parties  to  this  suit,  who,  in  fact,  drew  the 
checks.  The  allegation  in  each  of  the  special  counts  is,  that  "a 
certain  person"  drew  the  check.  In  2  Chitty's  Pleading,  (10th 
Am.  ed.)  *i5o,  it  is  said  that  it  is  not  necessary  to  state  the  names 
of  the  parties  to  a  bill  of  exchange,  unless  they  be  plaintiffs  or 
defendants.  It  may  also  be  said  that  the  declaration  virtually 
admits  that  the  several  checks  were  genuine  checks  of  the  tele- 
phone company,  and  that  the  endorsements  of  the  payees  alone 
were  forgeries. 

At  the  trial  the  court  admitted  evidence  to  show  that  the 
signatures  of  the  drawers  of  the  checks  were  forgeries.     That 


230  Admissions  of  the  Acceptor 

evidence  was  introduced  over  the  objections  and  exceptions  of 
appellee,  appellee  specifying  as  grounds  of  objection  that  such 
inquiry  was  irrelevant  to  the  issues  in  the  cause,  and  that  under 
the  issues,  and  as  between  the  plaintiff  and  defendant,  the  signa- 
tures of  the  drawers  of  the  checks  were  conclusively  presumed 
to  be  genuine.  Appellee  was  right  in  its  contentions.  A  check 
payable  to  order  is  a  bill  of  exchange  payable  to  order  on  demand. 
The  drawee  of  a  bill  of  exchange  or  of  a  bank  check  is  conclu- 
sively presumed  to  know  the  signature  of  the  drawer,  and  if  he 
accepts  or  pays,  in  the  usual  course  of  business,  a  bill  or  check 
whereon_the  signature  of  the  drawer  is  a  forgery,  he  will  be 
estopped  to  afterward  deny  the  genuineness  of  such  signature. 
(First  Nat.  Bank  of  Quincy  v.  Ricker,  71  111.  439;  Bigelow  on 
Estoppel,  (4th  ed.)  498;  2  Herman  on  Estoppel  and  Res  Judicata, 
Sees.  1006,  1008.)  But  the  operation  of  an  estoppel  is  reciprocal, 
for  there  can  be  no  estoppel  unless  it  be  mutual.  It  must  bind 
both  parties,  and  one  who  is  not  bound  by  it  can  not  take  advan- 
tage of  it.  (2  Herman  on  Estoppel,  Sec.  1295 ;  Co.  Lit.  352a;  Grif- 
fin v.  Richardson,  N.  C.  11  Ired.  L.  439;  Gaunt  v.  Wainman,  3 
Bing.  N.  C.  69,  and  32  Eng.  C.  L.  42 ;  Bcntley  et  al.  v.  Cleavcland, 
22  Ala.  814;  Welland  Canal  Co.  v.  Hathaway,  8  Wend.  480.)  And 
so,  .as,  in  respect  to  the  transactions  involved  in  the  present  litiga- 
tion, appellee_is  jprecluded  from  questioning  the  genuineness  of 
the  signatures  of  the  treasurer  and  president  of  the  telephone 
company  to  the  nine  checks,  so  also  is  appellant  estopped  from  so 
doing.  The  case  stands,  as  between  the  parties  to  this  suit,  just 
as  though  the  signatures  of  the  drawers  of  the  checks  were^ 
authentic.  To  rule  otherwise  would  be  to  disregard  the  maxim  of 
the  law,  allegans  contraria  non  est  audiendus,  and  to  permit  appel- 
lant to  blow  both  hot  and  cold  with  reference  to  the  same  transac- 
tions. 

In  the  present  case,  the  admission  of  the  incompetent  testi- 
mony seems  to  have  worked  no  injury,  for  when  the  trial  court 
came  to  make  its  findings  upon  the  issues,  it  manifestly  disre- 
garded such  testimony,  as  being  irrelevant. 

The  estoppel,  however,  of  which  we  have  spoken,  applies 
only  to  the  case  of  the  signature  of  the  drawer,  and  of  the  drawer, 
alone.  A  drawee  is  bound  to  know  the  signature  of  his  own  cus- 
tomers, and  a  bank  is  bound  to  know  the  signatures  of  those  who 
deposit  with  it  and  draw  checks  against  such  deposits.  But  the 
drawee  or  bank  is  not  chargeable  with  knowledge  of  any  other 
signature ion* the  bill  ofexchange  or  bank  check,  and  bv  accepting 
oTpaying  the  bill  or  checkHoes  not  admit  the  genuineness  of  any 


First  Nat.  Bank  v.  Northwestern  Nat.  Bank  231 

endorsement  on  it.  (2  Daniel  on  Neg.  Inst.,  Sees.  1364,  1365; 
Marine  Nat.  Bank  v.  Nat.  City  Bank,  59  N.  Y.  App.  67;  Canal 
Bank  v.  Bank  of  Albany,  1  Hill,  287 ;  Vagliano  v.  Bank  of  Eng- 
land, L.  R.  22  Q.  B.  Div.  103;  Vagliano  v.  Bank  of  England,  (on 
appeal)  L.  R.  23  id.  243.)  And  even  if  a  drawer  draws  a  bill  or 
check  payable  to  himself  or  his  own  order,  and  at  once  endorses 
it,  an  acceptance  or  payment  of  it  by  the  drawee  admits  only 
the  genuineness  of  the  drawer's  original  signature,  but  not  the 
genuineness  of  his  endorsement.  (2  Parsons  on  Notes  and  Bills, 
483 ;  2  Daniel  on  Neg.  Inst.,  Sec.  1365  ;  Beeman  v.  Duck,  11  Mees. 
&  Wels.  251  ;  Williams  v.  Drexel,  14  Md.  566). -\\MJ,^ 

At  the  trial,  C.  H.  Wilson  testified  for  appellee,  as  follows : 
"I  lived  in  Columbus  in  May,  June  and  July,  1887,  and  was  assist- 
ant general  superintendent  of  the  Central  Union  Telephone  Com- 
pany. That  company,  during  those  months,  was  accustomed  to 
draw  checks  on  the  Northwestern  National  Bank  to  my  order, 
under  the  designation  of  'A.  G.  Supt.'  The  signature  to  the 
endorsement  of  the  checks  mentioned  in  the  first  five  counts  of 
the  declaration,  and  now  shown  me,  are  not  my  signatures.  They 
are  forgeries, — every  one  of  them.  I  never  authorized  any  one  to 
sign  my  name  to  those  checks,  nor  did  I  know  they  were  signed, 
nor  have  I  ratified  or  approved  the  endorsements,  or  either  of 
them."  And  F.  P.  Ross  testified  as  follows :  "I  reside  at  Colum- 
bus, Ohio.  Was  manager  of  the  Central  Union  Telephone  Com- 
pany Exchange  there  in  May,  June  and  July,  1887.  Was  accus- 
tomed to  receive,  from  time  to  time,  checks  drawn  by  the  Central 
Union  Telephone  Company  to  my  order,  as  manager,  on  the 
Northwestern  National  Bank  of  Chicago,  generally  resembling 
the  checks  now  shown  me,  described  in  the  sixth,  seventh,  eighth 
and  ninth  counts  of  the  declaration.  The  endorsements  on  the 
back  of  them  are  not  my  endorsements.  They  are  forgeries.  I 
never  authorized,  consented,  ratified  or  approved  such  endorse- 
ments." 

It  is  urged  that  the  forgery  of  the  endorsements  is  not  suffi- 
ciently proven.  The  claim,  as  we  understand  counsel,  is,  that  it 
does  not  appear  that  the  checks  were  really  drawn  in  favor  of 
Wilson  and  Ross,  respectively,  in  the  sense  that  they  thereby 
became  the  owners,  respectively,  of  them,  or  that  it  was  the  inten- 
tion of  the  drawer  or  drawers,  by  means  of  the  checks,  to  pay  them 
money,  or  that  the  checks  were  delivered  to  them,  but  that,  on  the 
contrary,  it  is  logically  deducible  from  the  declaration  and  the 
evidence  that  the  checks  were  delivered  to  some  person  whose 
name  is  not  disclosed,  and  that  it  was  the  intention  of  the  drawer 


232  Admissions  of  the  Acceptor 

or  drawers  that  such  person  should  in  fact  receive  the  money,  and 
it  is  submitted,  that  in  such  state  of  the  case  it  was  not  forgery 
on  the  part  of  the  holder  of  the  checks  to  endorse  the  name  of 
Wilson,  or  that  of  Ross,  on  the  checks  payable  to  them,  respect- 
ively. The  contention  seems  to  be,  that  there  can  be  no  real  payee 
of  a  forged  instrument,  and  no  such  thing  as  a  forged  endorse- 
ment of  the  name  of  the  ostensible  payee  of  a  check  to  which  the 
name  of  the  drawer  is  forged.  This  argument  is  more  specious 
than  sound.  It  is  a  complete  answer  to  it  to  repeat  what  we  have 
already  said  in  another  connection :  that,  as  between  appellee  and 
appellant,  both  parties  are  estopped  from  claiming  that  the  origi- 
nal checks  anTnot  genuineVor  that  the  name  of  the  drawer  signed 
to  them  is  forged] 

If  further  authority  upon  that  point  is  desirable,  it  is  afforded 
by  the  recent  (1889)  judgment  of  the  Court  of  Appeals  in  the 
case  of  Vagliano  v.  Bank  of  England,  L.  R.  23  Q.  B.  Div.  243. 
The  amount  there  involved  was  about  $350,000.  In  the  bills  of 
exchange  there  in  question,  both  the  signatures  of  the  drawer  and 
the  endorsements  of  the  payee  were  forged.  In  this  respect  it 
was  like  the  case  at  bar,  and  in  respect  to  the  questions  at  issue 
it  was  also  singularly  like  it.  It  may  be  well  to  remark,  by  way 
of  explanation  of  some  of  the  language  that  we  shall  quote,  that 
one  of  the  questions  under  examination  was  whether  a  certain 
sub-section  3  of  a  statute  of  1882  was  a  mere  codification  of  exist- 
ing law  or  an  alteration  of  it.  The  court  there  said :  "The  bank 
can  only  justify  the  payment  that  has  been  made,  by  showing  that 
the  documents  were  to  be  considered  in  the  light  of  bills  originally 
payable  to  bearer,  in  which  case  the  bank  would  be  authorized  to 
pay  the  amount  to  the  person  who  was  the  holder.  Counsel  for 
the  bank  contended  before  us  that  the  payee  named,  C.  Petridi  & 
Co.,  were  fictitious  payees.  A  real  and  existing  firm  of  that  name 
were,  in  fact,  carrying  on  business  at  Constantinople,  and  had 
been  on  previous  occasions  payees  of  genuine  bills  drawn  by 
Vucina  upon  Vagliano  Bros.  It  was  unquestionably  intended  by 
Glyka  that  the  acceptor  should  believe,  and  the  acceptor  in  each 
case  did  believe,  that  the  payees  indicated  were  the  C.  Petridi  & 
Co.  in  question,  but  it  was  urged  by  the  appellant's  counsel  that  as 
Glyka,  the  forger,  intended  to  forge  C.  Petridi  &  Co.'s  names,  and 
never  meant  that  they  should  have  anything  to  do  with  the  bills, 
the  payees  were  fictitious.  *  *  *  Before  accepting  such  a 
construction  of  the  sub-section  it  is  desirable  to  state  with  pre- 
cision what  was  the  previous  commercial  law  upon  the  subject. 
The  law  merchant  seems  to  have  been  clear,  and  to  have  been 


First  Nat.  Bank  v.  Northwestern  Nat.  Bank         233 

based  throughout  on  the  principle  of  the  law  of  estoppel,  which, 
in  its  turn,  is  conformable  with  reason  and  business  principles. 
The  genuineness  of  the  endorsement  of  the  payee  was  a  matter 
as  to  which,  except  in  one  special  instance,  no  estoppel  prevailed. 
The  one  exception  to  the  rule  was  the  case  described  in  Story  on 
Bills  of  Exchange,  Sections  56  and  200.  This  exceptional  rule  in 
the  case  of  fictitious  bills  is  based,  as  has  been  stated,  on  a  special 
application  to  a  particular  case  of  the  principle  of  estoppel,  which 
plays  so  important  a  part  in  the  law  merchant."  Then,  after  a 
review  of  the  cases,  the  court  added :  "Down,  therefore,  to  the 
date  of  the  passing  of  the  recent  statute,  the  exception  that  bills 
drawn  to  the  order  of  a  fictitious  or  non-existing  payee  might  be 
treated  as  payable  to  bearer,  was  based  uniformly  upon  the  law  of 
estoppel,  and  applied  only  against  the  parties  who,  at  the  time  they 
became  liable  on  the  bill,  were  cognizant  of  the  fictitious  character 
or  of  the  non-existence  of  the  supposed  payee.  The  principle  that 
lies  at  the  root  of  the  exception  is,  that  a  reasonable  effect  must  be 
given,  in  favor  of  bona  fide  holders,  to  the  act  of  acceptance, 
and  that  where  it  appears  that  although  there  was  a  named  payee 
he  was  so  completely  fictitious  or  non-existing  that  the  acceptor 
_could  not  have  intended  to  restrict  payment  to  such  payee  or  ms 
orderTTHe  acceptor,  who  must  be  taken  to  have  intended  that  his 
acceptance__sh_ould  have  some  commercial  validity,  was  estopped" 
from  saving  that  the  bill  was  not  a  bill  payable  to  bearer.  If  the 
exception  is  to  be  extended  beyond  this,  it  will  rest  upon  no  prin- 
ciple at  all,  and  this  strange  result  would  follow :  that  where,  for 
purposes  of  fraud,  a  payee's  name  is  introduced,  (whose  signature 
it  is  intended  to  forge)  the  acceptor,  though  innocent  and  ignorant, 
will  be  bound  to  pay,  and  his  bankers  will  be  justified  in  paying 
without  any  endorsement  at  all.  The  acceptor,  in  such  cases,  will 
be  a  helpless  victim.  Ignorant,  himself,  of  the  fraud,  believing 
from  first  to  last  that  he  has  accepted  a  bill  payable  only  to  a  partic- 
ular payee  or  to  his  order,  he  will  be  held,  in  law,  nevertheless  to 
have  accepted  a  bill  payable  to  bearer.  The  word  'fictitious'  must  in 
each  case  be  interpreted  with  due  regard  to  the  person  against 
whom  the  bill  is  sought  to  be  enforced.  If  the  obligations  of  the_ 
acceptor  are  in  question,  and  the  acceptor  is  the  person  against 
whom  the  bill  is  to  be  so  treated,  fictitious  must  mean  fictitious  as 
regardsjjhe  acceptor,  and  to  his  knowledge.  Such  an  interpretation 
is  based  on  good  sense  and  sound  commercial  principle.  *  *  * 
Petridi  &  Co.  of  Constantinople  did  not  cease  to  be  real  persons 
because  Glyka  meant  to  suggest,  falsely,  that  they  were  to  be  the 
payees,  and  meant  himself  to  forge  their  names.    According  to  the 


234  Admissions  of  the  Acceptor 

ordinary  sense  of  the  English  language  the  payees  of  these  bills 
were  not  fictitious,  but  real,  persons,  from  first  to  last,  and  to  con- 
strue the  law  otherwise  would  be  to  render  it  the  source  of  needless 
disorder  and  confusion  in  business  transactions.  The  instruments 
in  question  were  not,  therefore,  payable  to  bearer,  and  the  bank 
having  paid  upon  forged  endorsements,  must,  in  the  absence  of 
any  other  ground  of  defense,  take  the  consequences." 

When  appellant  endorsed  the  nine  checks,  and  collected  from 
appellee  the  sums  of  money  called  for  by  them,  it  warranted  the 
genuineness  of  all  the  preceding  signatures  endorsed  on  the  respec- 
tive checks,  including  the  endorsements  on  the  checks  of  the  names 
of  the  respective  payees  named  in  such  checks.  (2  Parsons  on 
Notes  and  Bills,  588 ;  Williams  v.  Tishomingo  Savings  Institution, 
57  Miss.,  633  ;  Story  on  Bills  of  Exchange,  Sec.  225.)  And  where 
a  drawee  or  a  bank  pays  a  bill  of  exchange  or  a  bank  check  to  an 
endorser  who  derives  title  through  a  prior  forged  endorsement, 
he  may  recover  back  the  money  so  paid,  on  discovery  of  the 
forgery,  provided  he  makes  demand  for  repayment  within  a  rea- 
sonable time  after  the  discovery  of  such  forgery.  (2  Daniel  on 
Neg.  Inst.,  Sees.  1364,  1372;  Canal  Bank  v.  Bank  of  Albany,  1 
Hill,  287;  Williams  v.  Tishomingo  Savings  Institution,  supra.) 

The  evidence  shows  that  appellee  accepted  two  of  the  checks, 
"payable  through  Chicago  Clearing  House,"  prior  to  the  time  that 
they  were  transferred  to  Chapin  &  Gore.  This  makes  no  differ- 
ence. An_acceptp_r :  is_boujad  to  look  only  at  the  face  of  the  bill  or 
check,  and  an  acceptance  never  proves  an  endorsement :  and  even 
if  the  supposed  endorsements  of  the  payees  of  said  two  checks 
were  on  them  at  the  times  when  they  were  respectively  accepted, 
yet  such  acceptances  did  not  admit  the  handwriting  of  the  endors- 
ers. {Smith  v.  Chester,  1  Term  Rep.  654;  Robinson  v.  Yarrow, 
7  Taunton,  455  ;  2  Eng.  Com.  Law,  445.)  In  this  case,  the  accept- 
ance or  certification  of  the  two  checks  simply  warranted  the  genu- 
ineness of  the  signatures  of  the  drawer,  and  that  it  had  funds  suffi- 
cient to  meet  them,  and  engaged  that  those  funds  should  not  be 
withdrawn  from  the  bank  by  the  drawer,  and  that  the  bank  would 
pay  through  the  agency  of  the  Chicago  clearing  house  the  amount, 
if  any,  actually  due  on  the  check,  to  the  person  legally  entitled  to 
receive  it.  The  acceptance  or  certification  did  not  warrant  the 
genuineness  of  the  bodies  of  the  checks,  either  as  to  the  payees  or 
the  amounts,  or  warrant  the  genuineness  of  the  endorsements  on" 
tHe"checks.  (Marine  Nat.  Bank  v.  Nat.  City  Bank,  59  N.  Y.  App. 
67 ;  Security  Bank  v.  Nat.  Bank,  67  id.  45^-) 

The  case  made  by  the  evidence  introduced  by  appellee  was  in 


First  Nat.  Bank  v.  Northwestern  Nat.  Bank         235 

substance  as  follows :  Nine  several  checks,  of  different  dates  and 
amounts,  were  made  by  some  person,  and  signed  and  counter- 
signed in  manner  and  form  as  stated  in  the  nine  special  counts 
of  the  declaration,  five  of  which  were  made  payable  to  C.  H. 
Wilson,  A.  G.  superintendent,  and  the  remaining  four  to  F.  P. 
Ross,  manager,  and  directed  said  checks  to  the  appellee  bank.  All 
of  these  checks,  each  of  them  purporting  to  be  endorsed  by  the 
payee  therein  named,  were  transferred,  for  value,  to  Chapin  & 
Gore,  who  endorsed  each  of  them  "For  deposit  in  the  First 
National  Bank  to  the  credit  of  Chapin  &  Gore,"  and  delivered 
them  to  appellant,  and  appellant  also  endorsed  each  of  them  "Pay 
through  Chicago  Clearing  House  only  to  First  National  Bank," 
and  through  said  clearing  house  presented  them,  so  endorsed,  to 
appellee  for  payment,  and  received  from  it,  in  payment  thereof, 
the  full  amounts  called  for  by  said  checks.  None  of  said  checks 
were  in  fact  endorsed  by  the  payees  therein  respectively  named, 
but  all  of  the  endorsements  purporting  to  be  made  by  the  payees 
were  forgeries,  and  appellee  paid  said  checks  in  ignorance  of  such 
forgeries.  After  business  hours  on  Saturday,  July  23,  1887, 
appellee  made  discovery  of  the  forgeries,  and  on  the  following 
Monday,  July  25,  1887,  it  tendered  the  checks  back  to  appellant 
and  demanded  repayment  of  the  money  paid  by  it  on  the  same, 
but  appellant  refused  to  make  such  repayment.  Two  of  said 
checks,  before  they  came  into  the  hands  of  Chapin  &  Gore,  had 
been  accepted  by  appellee,  it  writing  on  the  face  of  each  of  them 
these  words :  "Accepted  payable  through  Chicago  Clearing 
House." 

In  our  opinion  these  facts  established,  prima  facie,  a  right  of 
action  in  appellee  as  against  appellant,  and  it  follows  that  the  trial 
court,  in  refusing  to  hold  the  eighth  proposition  submitted  by 
appellant,  to  the  effect  that  under  the  evidence  the  finding  and 
judgment  should,  as  a  matter  of  law,  be  for  appellant,  committed 
no  error. 

The  judgment  of  the  Appellate  Court  is  affirmed. 

Judgment  affirmed. 


W  *^v      1/ 


236  Admissions  of  the  Acceptor 

Heuertematte  v.  Morris  (1883),  101  N.  Y.  63. 
The  material  facts  are  stated  in  the  opinion. 

F.  R.  Coudert,  for  appellants. 

C.  E.  Coddington,  for  respondent. 

Ruger,  Ch.J.  In  the  discussion  of  this  case  it  is  unneces- 
sary to  consider  particularly  the  agency  of  Hourquet  &  Poylo  in 
the  transaction,  as  they  acted  solely  as  the  gratuitous  agents  of 
the  plaintiffs,  and  had  no  interest  in  the  subject  of  the  business. 
It  may,  therefore,  be  treated  as  a  transaction  occurring  directly 
between  the  plaintiffs  and  Ran  Runnels,  and  concisely  described, 
was  to  the  following  effect :  The  plaintiffs  were  merchants  doing 
business  at  Panama,  and  one  Christofel  was  a  customer  and  debtor 
of  theirs,  residing  at  San  Juan  del  Sur,  near  Rivas,  in  the  State 
of  Nicaraugua.  Christofel  was  desirous  of  discharging  his  obli- 
gations to  the  plaintiffs,  but  was  embarrassed  in  doing  so  by  the 
infrequency  of  communication  between  Rivas  and  Panama,  and 
the  want  of  a  system  of  exchange  enabling  him  to  transmit  funds 
safely  and  expeditiously  from  one  place  to  the  other.  Under  these 
circumstances  the  plaintiffs  consulted  Hourquet  &  Poylo,  a  busi- 
ness firm  at  Panama,  as  to  the  best  manner  of  collecting  the  debt. 
The  plaintiffs  were  informed  by  Hourquet  &  Poylo  that  Ran  Run- 
nels was  a  correspondent  of  theirs  residing  at  Rivas,  and  that  the 
collection  could  probably  be  made  through  him,  and  offered  to 
transmit  a  draft  on  Christofel  to  Runnels,  for  that  purpose.  There- 
upon the  plaintiffs  made  their  draft  on  Christofel  at  sixty  days 
for  $1,000  payable  to  Hourquet  &  Poylo,  who  indorsed  the  same 
to  Runnels  and  forwarded  it  to  him  at  Rivas  for  collection.  In 
due  time  it  was  received  by  Runnels,  and  at  its  maturity  was  paid 
to  him,  in  Columbian  currency. 

It  becomes  important  now  to  determine  the  legal  obligations 
and  duties  of  the  parties  toward  each  other  at  this  stage  of  the 
transaction.  In  the  collection  of  the  draft  Runnels  acted  as  the 
mere  agent  of  the  plaintiffs,  and  had  no  interest  in  the  proceeds 
except,  perhaps,  a  lien  thereon  for  the  value  of  his  services  in  mak- 
ing the  collection.  He  had  no  right  or  authority  to  use  such  funds 
for  his  individual  purposes,  and  his  sole  duty  in  relation  to  them, 
was  that  of  their  transmission  to  his  principals.  The  nature  of 
the  business  impliedly  authorized  him,  to  make  such  transmission 
according  to  the  usages  of  trade,  and  in  the  absence  of  such  usages 
to  do  so  by  some  other  method  which  should,  in  the  exercise  of 


Heuertematte  v.  Morris  237 

reasonable  care  and  prudence,  promise  to  accomplish  the  object 
intended.  It  was,  therefore,  open  to  him  to  transmit  the  funds 
received  in  specie  as  they  were  collected,  or  he  could  have  pur- 
chased a  bill  of  exchange,  if  opportunity  served,  at  that  place,  and 
transmitted  that ;  or  he  could  remit  them  in  any  other  way  deemed 
most  safe,  convenient  and  desirable  to  him,  subject  to  the  approval 
by  his  principals,  of  the  method  adopted.  It  does  not  appear  in 
the  case  but  that  Runnels  was  a  merchant  or  banker  and  accus- 
tomed to  sell  exchange  upon  foreign  places.  However  that  may 
be,  he  in  fact  sent  to  the  plaintiffs,  February  4,  1879,  immediately 
upon  collection,  the  proceeds  thereof,  less  cost  of  collection  and 
exchange,  by  the  draft  in  suit.  This  was  his  own  draft  upon  the 
defendant  Morris,  at  New  York,  at  ninety  days'  sight.  Upon  the 
receipt  of  this  draft  by  the  plaintiffs,  it  was  accepted  by  them  and 
remitted  to  New  York,  for  presentation  to,  and  acceptance  by  the 
drawee,  and  the  same  was  accepted  by  him  February  26,  1879. 

The  sole  question  in  the  case  is  whether  the  plaintiffs  were 
bona  fide  holders  for  value  of  the  draft.  We  cannot  doubt  but 
that  they  were.  If  on  receiving  the  funds  in  question  Runnels 
had  purchased  with  them  a  bill  of  exchange  draft  from  a  mer- 
chant, or  banker,  according  to  the  usages  of  trade,  and  trans- 
mitted the  same  to  the  plaintiffs,  no  question  could  arise  but  that 
he  acted  as  their  agent  in  the  transaction,  and  they  would  have 
been  bona  fide  holders  of  such  paper  within  all  definitions  of  that 
character,  and  we  are  unable  to  see  the  difference  in  principle 
between  such  a  case  and  the  transaction  in  question.  The  funds 
collected  by  Runnels  were,  until  they  consented  to  their  appropria- 
tion by  him,  at  all  times  the  property  of  the  plaintiffs.  Runnels' 
sole  duty  in  relation  to  them  was  that  of  transmission  to  the  plain- 
tiffs, and  until  that  duty  was  legally  performed  he  held  them  in 
a  fiduciary  capacity  for  a  specified  purpose.  His  duty  of  trans- 
mission could  not  be  performed  by  remitting  his  own  obligation, 
payable  at  a  future  day,  except  by  the  consent  and  approval  of  the 
plaintiffs.  Until  this  consent  and  approval  was  given  the  funds 
remained  the  property  of  the  plaintiffs,  and  any  use  of  them  by 
Runnels  before  that  time  would  have  constituted  a  violation  of  his 
duty  to  his  principals,  which  it  cannot  be  presumed  he  committed. 

Doubtless  the  lack  of  adequate  facilities  of  exchange  between 
Rivas  and  Panama  induced  Runnels  to  offer,  and  the  plaintiffs  to 
accept,  the  mode  of  remittance  adopted,  and  it  was  entirely  com- 
petent for  Runnels  to  propose,  and  for  the  plaintiffs  to  accept  such 
a  solution  of  the  inconveniences  of  the  situation ;  but  no  title  to 
the  funds  collected  passed  to  Runnels,  until  the  acceptance  of  the 


238  Admissions  of  the  Acceptor 

draft  by  the  plaintiffs.    After  that  and  not  till  then  he  was  author- 
ized to  use  those  funds  as  his  own. 

By  the  original  employment  the  plaintiffs  contemplated  no 
credit  to  Runnels  and  he  had  no  right  to,  and  it  does  not  appear 
that  he  even  supposed,  he  acquired  any  right  to  use  the  funds  in 
question  for  his  own  purposes,  or  that  he  ever  did  so  use  them. 
The  conventional  relation  of  debtor  and  creditor  never  existed 
between  Runnels  and  the  plaintiffs  until  the  acceptance  of  his 
draft  upon  Morris,  and  then  those  relations  were  governed  by  the 
liabilities  existing  by  force  of  the  draft  alone. 

In  accordance  with  the  rule  which  precludes  a  court  from 
presuming  a  violation  of  duty  by  an  individual,  we  must  assume 
that  Runnels  performed  his  duty,  and  his  whole  duty,  to  the  plain- 
tiffs as  their  agent.  This  required  him  to  safely  keep  their  funds 
until  he  had  transmitted  them  according  to  the  usage  of  trade,  or 
in  some  other  mode  approved  by  them.  The  legal  effect  of  the 
method  adopted  was__to  transfer  the  title  to  the  funds  collected^ 
to_Runnels  simultaneously  with  the  acceptance  by  the  plaintiffs  of 
Runnels'  draft  upon  Morris,  and  was  the  precise  equivalent  of  the 
payment  of  so  much  money  in  the  immediate  purchase  of  a  draft 
or  bill  of  exchange  by  one  person  from  another.  We  are,  there- 
fore, of  the  opinion  that  the  plaintiffs  were  the  bona  fide  holders 
for  value  of  the  draft  in  suit  and  are  entitled  to  recover  thereon. 

The  General  Term  conceded  that  the  plaintiffs  were  bona  fide 
holders  for  value  of  the  bill  before  acceptance,  but  deny  them  that 
character  after  acceptance  as  against  the  acceptor.  We  think  the 
concession  is  fatal  to  the  conclusion  reached  by  that  court. 

It  is  said  that  the  Farmers  &  Mechanics'  Bank  v.  Empire 
Stone  Dressing  Co.  (5  Bosw.  290)  is  authority  for  the  position. 
It  is  true  that  some  expressions  of  the  learned  judge  writing  in 
that  case  may  justify  the  citation,  yet  it  should  be  considered  that 
those  remarks  were  unnecessary  to  the  decision  of  the  case,  and 
the  same  court  have  twice  since  then  refused  to  follow  it. 

We  conceive  the  rule  there  laid  down  finds  no  support  in  the 
doctrines  of  the  text-writers  or  the  reported  cases.  (Philbrick  v. 
Dallett,  2  J.  &  S.  370 ;  First  Nat.  Bank  of  Portland  v.  Schuyler, 
7  id.  440;  Parsons  on  Bills  and  Notes,  323;  Daniels  on  Neg.  Inst., 
§  534;  Edwards  on  Bills  [2d  ed.],  410.) 

If  a  party  becomes  a  bona  fide  holder  for  value  of  a  bill  before 
its  acceptance,  it  is  not  essential  to  his  right  to  enforce  it  against 
^subsequent  acceptor,  that  an  additional  consideration  should 
proceed~irom  hihTlo  the  drawee!  The  bill  itself  implies  a  repre- 
sentation by  the  drawer  that  the  drawee  is  already  in  receipt  of 


Heuertematte  v.  Morris  239 

funds  to  pay,  and  his  contract  is  that  the  drawee  shall  accept  and 
pay  according  to  the  terms  of  the  draft.  (Parsons  on  Bills,  323, 
544;  Arpin  v.  Chapin,  Mass.  Sup.  Ct.,  Oct.,  1885.)  The  drawee 
can  of  course  upon  presentment  refuse  to  accept  a  bill,  and  in  that 
event  the  only  recourse  of  the  holder  is  against  the  prior  parties 
thereto ;  but  in_case  the  drawee  does  accept  a  bill,  he  becomes  pri- 
marily liable  for  its  payment,  not  only  to  its  indorsees  but  also  to 
the  drawer  himself. 

The  delivery  of  a  bill  or  check  by  one  person  to  another  for 
value  implies  a  representation  on  the  part  of  the  drawer  that  the 
drawee  is  in  funds  for  its  payment,  and  the  subsequent  acceptance 
of  such  check  or  bill  constitutes  an  admission  of  the  truth  of  the 
representation,  which  the  drawee  is  not  allowed  to  retract.  (Dan- 
iels on  Neg.  Inst.,  534;  Parsons  on  Bills,  323,  544,  545.)  By  such 
acceptance  the  drawee  admits  the  truth  of  the  representation,  and 
having  obtained  a  suspension  of  the  holder's  remedies  against  the 
drawer,  and  an  extension  of  credit  by  his  admission,  is  not  after- 
ward at  liberty  to  controvert  the  fact  as  against  a  bona  fide  holder 
for  value  of  the  bill. 

The  payment  to  the  drawer  of  the  purchase-price  furnishes  a 
good  consideration  for  the  acceptance  which  he  then  undertakes 
shall  be  made,  and  its  subsequent  performance  by  the  drawee  is 
only  the  fulfillment  of  the  contract  which  the  drawer  represents 
he  is  authorized  by  the  drawee  to  make. 

The  rule  that  it  is  not  competent  for  an  acceptor  to  allege  as 
a  defense  to  an  action  on  a  bill  that  it  was  done  without  considera- 
tion, or  for  accommodation,  as  against  a  bona  fide  holder  for  value 
c?f  such  paper,  flows  logically  from  the  conclusive  force  given  to 
his  admission  of  funds,  and  is  elementary.  (Daniels  on  Neg.  Inst., 
§§  532_534;  Edwards  on  Bills,  410;  Harger  v.  Worrall,  69  N.  Y. 
371 ;  Com.  Bk.  of  Lake  Erie  v.  Norton,  1  Hill,  501  ;  Robinson  v. 
Reynolds,  2  Q  B.  196,  211;  Hoffman  v.  Bank  of  Mihvaukee,  12 
Wall.  181.) 

Of  course  the  case  determined  upon  the  ground  that  the  pavee 
of  such  paper  received  it  to  apply  upon  an  antecedent  debt,  or  that 
it  had  been  unlawfully  diverted  from  the  purpose  for  which  it  was 
designed,  have  no  application  to  the  circumstances  of  this  case. 

The  judgments  of  the  courts  below  should,  therefore,  be 
reversed  and  a  new  trial  ordered,  with  costs  to  abide  the  result. 

All  concur. 

Judgment  reversed. 


WC"L     «J^Ayv^ — <- 


240  Contract  of  the  Certifier 

contract  of  the  certifier.  §  1 89. 

Union  Trust  Co.  v.  Preston  Nat.  Bank  (1904),  136  Mich.  460. 

Error  to  Wayne ;  Donovan,  J. 

Assumpsit  by  the  Union  Trust  Company,  receiver  of  the  City 
Savings  Bank  of  Detroit,  against  the  Preston  National  Bank  of 
Detroit,  to  recover  the  amount  of  a  deposit.  From  a  judgment 
for  plaintiff  on  verdict  directed  by  the  court,  defendant  brings 
error.     Reversed. 

Gecr,  Williams  &  Halpin,  and  H.  R.  Martin,  for  appellant. 

Walker  &  Spalding,  for  State  Savings  Bank  (contending 
with  appellant). 

Bowcn,  Douglas,  Whiting  &  MurUn  {John  C.  Donnelly  and 
Frederick  W.  Whiting,  of  counsel),  for  appellee. 

Carpenter,  J.  Plaintiff  brought  this  suit  to  recover  a  con- 
ceded balance  of  $21,585.11  owing  by  defendant  to  the  City  Sav- 
ings Bank  at  the  time  plaintiff  was  appointed  receiver.  Defend- 
ant sought  to  set  off  against  this  indebtedness  the  sum  of  $100,000, 
represented  by  a  check  drawn  on  said  City  Savings  Bank  January 
24,  1902,  by  F.  C.  Andrews,  payable  to  defendant's  order,  and 
certified  in  due  form  by  the  teller  of  the  insolvent  bank.  It 
appeared  that,  at  the  time  this  check  was  certified,  its  maker, 
Andrews,  instead  of  having  funds  to  his  credit  in  said  bank,  had 
overdrawn  his  account,  as  shown  by  the  bank's  books,  "to  the 
amount  of  $405,000."  The'  defendant  offered  to  prove  that  it 
received  said  check,  after  certification,  on  the  day  it  was  drawn, 
in  the  usual  course  of  business,  and  paid  to  said  Andrews,  the 
maker,  full  value  therefor,  and  at  that  time  had  no  notice  or 
knowledge  of  any  infirmity  in  said  check,  or  of  the  fact  that  the 
account  of  said  Andrews  was  overdrawn.  This  evidence  was 
excluded,  on  the  ground  that  said  check  was  invalid  in  the  hands 
of  a  bona  tide  holder,  and  a  verdict  directed  for  the  plaintiff  for 
the  amount  of  the  deposit  in  defendant's  hands.  The  sole  ques- 
tion presented  by  this  record  relates  to  the  correctness  of  this 
holding. 

It  is  authoritatively  settled  and  conceded  that  at  common  law 
the  fact  that  the  maker  of  a  certified  check  had  no_funds  in  the 
bank_affords  no  defense,  if  the  checl^  negotiable  Inform,  as  in 
ibis  case,  has  passed  into  the  hands  of  a  bonajide  hol^eK  See 
Merchants'   Bank   v.   State   Bank,    10  Wall.    604;   Farmers'   & 


Union  Trust  Co.  v.  Preston  National  Bank 


241 


Mechanics'  Bank  v.  Butchers'  &  Drovers'  Bank,  16  N.  Y.  125 
(69  Am.  Dec.  678).  This  case  is  not,  however,  to  be  determined 
solely  by  common-law  principles.  The  correctness  of  the  holding 
of  the  trial  court  depends  upon  the  proper  construction  of  certain 
statutory  provisions  in  our  banking  act  relative  to  the  certification 
of  checks.  Section  6108,  2  Comp.  Laws,  being  section  19  of  the 
general  banking  act,  reads : 

"It  shall  not  be  lawful  for  any  officer,  clerk,  agent,  or 
employee  of  a  bank  to  certify  a  check,  unless  the  amount  thereof 
actually  stands  to  the  credit  of  the  drawer  upon  the  books  of  the 
bank  or  to  resort  to  any  device,  or  receive  any  fictitious  obliga- 
tions, direct  or  collateral,  in  order  to  evade  the  provisions  of  this 
prohibition ;  and  any  officer,  clerk,  agent,  or  employee  who  shall 
attempt  any  such  evasions  shall,  upon  conviction  thereof,  be 
deemed  guilty  of  a  misdemeanor,  and  punished  as  provided  in 
section  fourteen  of  this  act." 

Other  sections  of  the  banking  act,  viz.,  section  14  (section 
6103,  2  Comp.  Laws),  section  18  (section  6107,  2  Comp.  Laws), 
and  section  58  (section  6147,  2  Comp.  Laws),  make  the  violation 
of  section  19  a  crime. 

In  construing  this  act,  we  have  not  the  benefit  of  decisions 
of  other  courts  construing  a  precisely  similar  act,  for,  with  the 
exception  of  the  national  banking  act,  which  will  be  hereafter 
referred  to,  there  is  no  similar  act. 

It  will  thus  be  seen  that  the  certification  in  question_was  for^ 
biddenjby  law,  and  punishable  as  a  crime.  The  statute  does  not, 
however,  expressly  declare  that  the  check  so  certified  shall  be 
void  in  the  hands  of  a  bona  tide  holder.  Indeed,  it  does  not 
expressly  declare  that  it  shall  be  void  in  the  hands  of  one  who 
is  not  a  bona  tide  holder.  The  fact^howeyer,  that  the  certification 
is  forbijddejq_aJld„maxki__a  crime,  compels  the  inference  that  the 
legislature  intended  to  avoid  such  certification_between  the  origi- 
nal parties  (see  Heffron  v.  Daly,  133  Mich.  6i3[95  N.  W.  714  j )  ; 
and  this,  it  is  almost  unnecessajx  to  say,  avoids  it  in  the_Jiands 
of  everyone  not  abona  tide  holder.  It  by  no  means  follows,  how- 
ever, because  a  contract  made  in  violation  of  law,  common  or 
statutory,  is  void  between  the  original  parties,  that,  if  given  the 
form  of  negotiable  paper,  it  is  void  in  the  hands  of  a  bona  tide 
holder.  Indeed,  it  is  the  distinguishing  characteristic  of  the  law 
of  negotiable  paper  that,  when  a  contract  takes  that  form,  it  is 
not,  in  the  hands  of  a  bona  tide  holder,  subject  to  the  defense 
which  avoided  it  in  the  hands  of  the  original  parties.     Negotiable 


»< 


242  Contract  of  the  Certifier 

paper  in  the  hands  of  a  bona  tide  holder  is  not  open  to  the  defense 
that  the  contract  from  which  it  arose  was  illegal  or  forbidden  by 
the  principles  of  the  common  law.  A  note  given  to  compound  a 
felony  is  good  in  the  hands  of  a  bona  fide  holder.  (Clark  v. 
Ricker,  14  N.  H.  44;  Wcntworth  v.  Blaisdell,  17  N.  H.  275.) 
Nothing  less  than  a  statutory  enactment  will  subject  negotiable 
paper  in  the  hands  of  a  bona  fide  holder  to  the  defense  of  illegality 
in  its  inception. 

What,  then,  is  the  effect  of  a  statute  which  merely  prohibits 
the  making  of  a  particular  contract,  and  punishes  its  making  as  a 
crime?  How  shall  we  determine  what  consequences  the  legis- 
lature intended  should  follow  a  violation  of  this  law?  Manifestly 
by  applying  in  its  construction  the  principles  of  the  common  law. 

"Statutes  are  not,  and  cannot  be,  framed  to  express  in  words 
their  entire  meaning.  They  are  framed,  like  other  compositions, 
to  be  interpreted  by  the  common  learning  of  those  to  whom  they 
are  addressed, — especially  by  the  common  law,  in  which  it 
becomes  at  once  enveloped,  and  which  interprets  its  implications 
and  defines  its  incidental  consequences.  That  which  is  implied 
in  a  statute  is  as  much  a  part  of  it  as  what  is  expressed."  (2 
Suth.  Stat.  Constr.  §  334). 

In  accordance  with  these  principles,  we  would  assume,  and, 
as  heretofore  stated,  we  do  assume,  that  the  legislature  intended 
to  make  such  contract  void  between  the  parties ;  and  we  would 
likewise  assume  that  it  did  not  intend,  if  the  contract  took  the 
form  of  negotiable  paper,  to  affect  its  validity  in  the  hands  of  a 
bona  fide  holder.  But  plaintiff's  counsel  contend  that  it  is  settled 
by  authority  that,  when  a  contract  is  prohibited  and  made  a  crime 
by  statute,  such,  a  contract,  if  it  takes  the  form  of  negotiable 
paper,  is  void  in  the  hands  of  a  bona  fide  holder;  and  they  rely 
upon  the  following  authorities:  1  Clark  &  M.  Priv.  Corp.  §225; 
Endl.  Interp.  Stat.  §449;  2  Suth.  Stat.  Constr.  §336;  Anson, 
Cont.  172;  Heffron  v.  Daly,  33  Mich.  613  (95  N.  W.  714)  ;  State 
Life-Ins.  Co.  v.  Strong,  127  Mich.  346  (86  N.  W.  825)  ;  Loranger 
v.  Jardine,  56  Mich.  518  (23  N.  W.  203)  ;  Bowditch  v.  Insurance 
Co.,  141  Mass.,  at  page  293  (4  N.  E.  798,  55  Am.  Rep.  474)  ; 
Union  Nat.  Bank  v.  Raihvay  Co.,  145  111.  208  (34  N.  E.  135)  ; 
Cincinnati  Mut.  Health  Assnr.  Co.  v.  Rosenthal,  55  111.  85  (8 
Am.  Rep.  626)  ;  Borough  of  Milford  v.  Milford  Water  C,  124. 
Pa.  St.  610  (17  Atl.  185,  3  L.  R.  A.  122)  ;  Edgerly  v.  Hale,  71  N. 
H.  138  (51  Atl.  679)  ;  Woods  v.  Armstrong,  54  Ala.  152  (25  Am. 
Rep.  671)  ;  McConncll  v.  Kitchens,  20  S.  C.  430  (47  Am.  Rep. 


Union  Trust  Co.  v.  Preston  National  Bank  243 

845)  ;  Texarkana,  &c,  R.  Co.  v.  Lumber  Co.,  67  Ark.  542  (55  S. 
W.  944)  ;  Snoddy  v.  Dank,  88  Tenn.  573  (13  S.  W.  127,  7  L.  R. 
A.  705,  17  Am.  St.  Rep.  918). 

None  of  these  authorities,  except  Texarkana,  etc.,  R.  Co.  v. 
Lumber  Co.  and  Snoddy  v.  Bank,  which  will  receive  attention 
later  in  this  opinion,  related  to  a  case  of  negotiable  paper  in  the 
hands  of  a  bona  fide  holder.  All  that  can  justly  be  claimed  for 
these  authorities,  with  the  exceptions  above  referred  to,  is  that 
they  hold  that,  when  the  making  of  a  contract  is  prohibited  and 
made  a  crime  by  statute,  it  is  void  as  between  the  original  parties, 
or — what  is  the  same  thing — as  between  parties  who  do  not  stand 
in  the  attitude  of  a  bona  fide  holder  of  negotiable  paper  arising 
therefrom.  It  is  true  that  many  of  these  decisions  say  that  such 
a  contract  is  void,  and  one  of  them  (see  Borough  of  Milford  v. 
Mil  ford  Water  Co.)  says  that  it  "is  utterly  void,  and  there  is  no 
power  that  can  breathe  life  into  such  a  dead  thing."  This  lan- 
guage must,  however,  in  accordance  with  every  just  principle  of 
construction,  be  understood  as  applying  to  the  case  before  the 
court.  It  may  not  be  improper  to  describe  the  particular  contracts 
under  consideration  as  void,  and  as  utterly  void.  But  it  by  no 
means  follows  that  negotiable  paper  issued  on  such  contract  would 
be  void  in  the  hands  of  a  bona  tide  holder  for  value.  These 
authorities  cannot  be  regarded  as  authority  for  the  proposition 
for  which  plaintiff's  counsel  cite  them.  They  are  not  inconsistent 
with  the  rule  (which  we  deem  it  our  duty  to  undertake  to  show 
is  well  settled  by  authority)  that,  though  a  contract  is  prohibited 
and  made  a  crime  by  statute,  that  contract,  if  it  takes  the  form  of 
negotiable  paper,  is  valid  and  enforceable  in  the  hands  of  a  bona 
tide  holder.  Says  Mr.  Daniel,  in  his  work  on  Negotiable  Instru- 
ments, §  197: 

"The  bona  tide  holder  for  value,  who  has  received  the  paper 
in  the  usual  course  of  business,  is  unaffected  by  the  fact  that  it 
originated  in  an  illegal  consideration,  without  any  distinction 
between  cases  of  illegality  founded  in  moral  crime  or  turpitude, 
wEi eh  are  termed  'mala  in  se'  and  those  founded  in  positive  stat- 
utory prohibition,  which  are  termed  'mala  prohibita.'  The  law 
extends  this  peculiar  protection  to  negotiable  instruments  because 
it  would  seriously  embarrass  mercantile  transactions  to  expose 
the  trader  to  the  consequences  of  having  the  bill  or  note  passed  to 
him  impeached  for  some  covert  defect." 

In  Vinton  v.  Peck,  14  Mich.  287.  defendant  was  an  accom- 
modation maker  of  a  negotiable  promissory  note  dated  on  Monday, 
but  in  fact  made  the  preceding  Sunday,  contrary  to  the  statute 


244  Contract  of  the  Certifier 

expressly  prohibiting,  under  penalty  of  a  fine,  "any  manner  of 
labor,  business,  or  work,  except  only  works  of  necessity  and 
charity."  (See  I  Comp.  Laws  1857,  §  1574.)  It  was  held  that 
the  note  was  valid  and  enforceable  in  the  hands  of  a  bona  fide 
purchaser,  because  "the  statute  has  not  declared  that  notes  made 
contrary  to  the  Sunday  law  shall  be  void  under  all  circumstances. 
Their  invalidity  is  only  to  be  implied  from  the  prohibition  of 
Sunday  business,  and  under  such  a  statute  a  bona  fide  holder  is 
protected." 

State  Capital  Bank  v.  Thompson,  42  N.  H.  369,  is  almost 
precisely  like  the  above  case. 

In  New  v.  Walker,  108  Ind.  365  (9  N.  E.  386,  58  Am.  Rep. 
40),  a  negotiable  note  was  taken  in  violation  of  a  statute  requir- 
ing, under  a  penalty,  to  be  stated  therein,  "Given  for  a  patent 
right."  The  court  held  this  note  valid  in  the  hands  of  a  bona  fide 
holder,  saying  (pages  374,  375)  : 

"Our  opinion  is  that  a  statute  making  it  a  crime  to  take  prom- 
issory notes  in  a  prohibited  transaction  does  not  make  the  notes 
void  in  the  hands  of  innocent  purchasers,  although  the  person  who 
violates  the  statute  commits  a  crime.  This  conclusion  is  well 
sustained  by  authority," — citing,  among  other  cases,  Palmer  v. 
Minar,  8  Hun.  342,  and  Cook  v.  Weirman,  51  Iowa,  561  (2  N. 
W.  386),  which  are  similar  to  the  principal  case. 

In  Smith  v.  Bank,  9  Neb.  31  (1  N.  W.  893),  the  court 
expressed  its  disapproval  of  a  statement  in  Kittle  v.  DeLamater, 
3  Neb.  325: 

"Or,  if  the  note  be  founded  upon  an  illegal  consideration, 
prohibited  by  some  positive  statute,  no  recovery  can  be  had,  even 
though  the  indorsee  may  not  be  privy  to  the  original  transaction." 

In  Hart  v.  Machine  Co.,  72  Miss.  809  (17  South.  769).  it 
was  held  that. negotiable  paper  issued  in  violation  of  the  statute 
of  Tennessee  forbidding  corporations  doing  business  in  that  State 
without  compliance  with  its  provisions  was  valid  in  the  hands 
of  a  bona  fide  holder,  the  court  saying  (pages  833,  834)  : 

"The  statute,  while  forbidding  foreign  corporations  from 
doing  business  in  the  State  without  compliance  with  its  conditions, 
does  not  declare,  by  express  terms,  that  any  contracts  made  with 
delinquent  corporations  shall  be  void,  nor  does  it  denounce  as 
invalid  any  securities  given  by  or  to  it  under  such  contracts. 
The  English  and  some  of  the  American  statutes  against  usury 
and  gaming  declared  that  all  assurances  and  securities  given  in 
consideration  thereof  should  be  void.     Under  such  declarations, 


Union  Trust  Co.  v.  Preston  National  Bank  245 

it  has  very  generally  been  held  that  negotiable  paper,  even  in  the 
hands  of  a  bona  fide  holder,  is  void,  because  of  the  language  of 
the  law.  But  where  only  the  contract  is  declared  void,  and  there 
is  no  declaration  of  nullity  against  securities,  it  is  held  that  while, 
as  between  the  parties,  and  those  taking  with  notice  or  after 
maturity,  no  recovery  can  be  had,  a  bona  fide  holder  will  be 
protected." 

In  Press  Co.  v.  Bank,  7  C.  C.  A.  248,  58  Fed.  321,  notes 
issued  in  violation  of  a  statute  forbidding  foreign  corporations 
doing  business  except  in  compliance  with  its  terms  were  held 
valid  in  the  hands  of  a  bona  fide  holder,  the  court  saying  (page 
249,  7  C.  C.  A.,  page  322,  58  Fed.)  : 

"It  is  urged  that  public  policy  forbids  a  recovery;  that  to 
hold  otherwise  will  nullify  the  statute.  We  do  not  think  so.  If 
the  legislature  intended  the  consequences  claimed,  we  would 
expect  it  to  say  so." 

In  Lynchburg  Nat.  Bank  v.  Scott,  91  Va.  652  (22  S.  E.  487, 
29  L.  R.  A.  827,  50  Am.  St.  Rep.  860),  it  was  contended  that  a 
note  obligating  the  maker  to  pay  usurious  interest  was  void  in 
the  hands  of  a  bona  fide  holder.  The  court  answered  that  con- 
tention by  saying  (page  659)  : 

"If  the  maker  of  a  negotiable  note  contests  the  right  of  one 
who  has  acquired  it  by  indorsement,  for  value,  before  maturity, 
and  without  notice  of  any  defense,  to  recover  of  him  the  amount 
of  the  note,  he  must,  to  prevail,  be  able  to  show  a  statute  that  in 
express  terms,  or  by  necessary  implication,  declares  the  note  to 
be  void." 

So  it  has  been  held : 

"If  a  statute  declares  a  security  void,  it  is  void  in  whoseso- 
ever hands  it  may  come.  If,  however,  a  negotiable  security  be 
founded  on  an  illegal  consideration, — and  it  is  immaterial  whether 
it  be  illegal  at  common  law  or  by  statute, — and  no  statute  says 
it  shall  be  void,  the  security  is  good  in  the  hands  of  an  innocent 
holder,  or  of  any  one  claiming  through  such  a  holder."  (Glenn  v. 
Bank,  70  N.  C.  191 ;  Smith  v.  Bank,  9  Neb.  31  [1  N.  W.  893]  ; 
Grimes  v.  Hillenbrand,  4  Hun.  354;  Hill  v.  Northrup,  4  Thomp. 
&  C.  120;  Converse  v.  Foster,  32  Vt.  828;  Lauter  v.  Trust  Co.,  29 
C.  C.  A.  473,  85  Fed.  894;  Hatch  v.  Burroughs,  1  Woods,  439 
[Fed.  Cas.  No.  6,203]). 

Other  authorities  hold  that  "when  a  statute,  expressly  or  by 
necessary  implication,  declares  the  instrument  absolutely  void,  it 


246  Contract  of  the  Certifier 

gathers  no  vitality  by  its  circulation,  in  respect  to  the  parties 
executing  it."  (i  Daniel,  Neg.  Inst.,  §  197;  Pope  v.  Hankc,  155 
111.,  at  page  625  et  seq.  [40  N.  E.  839,  28  L.  R.  A.  568]  ;  Thomp- 
son v.  Samuels,  [Tex.]  14  S.  W.  143)- 

We  have  already  referred  to  the  fact  that  two  of  the  author- 
ities cited  by  plaintiff's  counsel,  viz.,  Snoddy  v.  Bank,  88  Tenn. 
573  (J3  S-  W.  127,  7  L.  R.  A.  705,  17  Am.  St.  Rep.  918),  and 
Texarkana,  etc.,  R.  Co.  v.  Lumber  Co.,  67  Ark.  542  (55  S.  W. 
944),  arose  upon  negotiable  paper  in  the  hands  of  a  bona  fide 
holder.  Snoddy  v.  Bank  is  authority  for  this  proposition  :  "Notes 
given  in  consideration  of  a  contract  against  morals,  public  policy, 
and  public  statutes  are  void  in  any  hands."  This,  as  we  have 
already  shown,  and  as  we  understand  plaintiff's  counsel  to  con- 
cede, is  opposed  to  almost  unanimous  authority,  and  cannot,  there- 
fore, be  accepted  as  a  correct  declaration  of  the  law.  In  Texar- 
kana, etc.,  R.  Co.  v.  Lumber  Co.,  suit  was  brought  upon  a  negoti- 
able promissory  note  made  by  the  plaintiff  corporation,  contrary 
to  the  constitution  and  statutes  of  the  State  of  Texas,  for  the 
accommodation  of  its  president.  It  was  held  that  this  note  was 
void  in  the  hands  of  a  bona  fide  holder.  The  argument  of  the 
court  in  support  of  this  contention  is  this : 

"A  contract  prohibited  by  the  constitution  or  statute  of  a 
state,  although  negotiable  in  form,  is  not  so  in  fact,  and  no  inno- 
cence or  ignorance  on  the  part  of  the  holder  will  make  it  enforce- 
able. It  is  an  absolute  nullity," — citing  1  Daniel,  Neg.  Inst.,  §  807, 
and  decisions  of  the  Supreme  Court  of  the  United  States  and  the 
Supreme  Court  of  Texas. 

The  decisions  referred  to  do  not  sustain  the  proposition  for 
which  they  are  cited.  The  section  of  Daniel  cited  has  reference 
to  cases  where  an  express  statutory  provision  declares  a  note  void. 
We  cannot  follow  this  authority  without  repudiating  our  own 
decision  of  Vinton  v.  Peck,  14  Mich.  287,  and  the  almost  unani- 
mous authority  of  other  courts. 

Plaintiff's  counsel  assert  that  the  case  at  bar  is  not  ruled  by 
decisions  which  hold  that  negotiable  paper  based  upon  an  illegal 
consideration  is  valid  in  the  hands  of  a  bona  fide  holder.  They 
insist  that  such  cases  are  not  authority,  because  the  statute  under 
consideration  in  this  case  did  not  merely  make  the  consideration 
illegal ;  it  actually  "prohibited  and  penalized"  the  making  of  the 
contract  itself.  We  are  unable  to  see  that  this  circumstance,  if  it 
affords  a  sound  distinction,  distinguishes  the  case  at  bar  from 
several  of  the  cases  above  referred  to.    In  Vinton  v.  Peck,  supra, 


Union  Trust  Co.  v.  Preston  National  Bank  247 

the  particular  act  which  was  prohibited  and  punishable  by  fine 
was  the  making  of  the  note  in  suit.  It  is  true  that  the  statute 
did  not  in  express  terms  prohibit  the  making  of  the  note,  but, 
when  it  prohibited  'the  doing  of  any  business,  it  did  prohibit  the 
making  of  the  note,  for,  as  was  expressly  said  by  the  supreme 
court  of  New  Hampshire  in  State  Capital  Bank  v.  Thompson, 
42  N.  H.,  at  page  370, — 

"Under  the  construction  of  our  statute  prohibiting  unneces- 
sary labor  on  Sunday,  the  execution  and  delivery  of  a  promissory 
note  upon  Sunday  has  been  declared  'business  of  a  person's  secu- 
lar calling;'    *     *     *    and,  as  such,  is  prohibited  under  a  penalty." 

So,  in  New  v.  Walker,  108  Ind.  365  (9  N.  E.  386,  58  Am. 
Rep.  40),  a  bona  fide  holder  was  allowed  to  recover  on  a  note 
given  for  a  patent  right  in  violation  of  a  statute  which  prohibited, 
under  a  penalty,  the  delivery  of  the  note  without  the  insertion  of 
the  clause  that  it  was  "given  for  a  patent  right."  It  is  idle  to  say 
that  the  making  of  this  note  was  not  prohibited  by  a  penal  statute. 
See,  also,  Palmer  v.  Minar,  8  Hun.  342;  Cook  v.  Weirman,  51 
Iowa,  561  (2  N.  W.  386).  The  only  distinction  that  can  be  drawn 
between  those  cases  and  the  case  at  bar  is  in  the  nature  and  extent 
of  the  punishment  for  making  the  contract  prohibited  by  law. 
Such  an  inconsequential  distinction  will  not  change  a  rule  of  law. 

We  conclude,  therefore,  that,  though  the  making  of  a  con- 
tract is  prohibited  and  made  a  crime  by  statute,  yet  that  contract, 
if  it  takes  the  form  of  negotiable  paper,  is  valid  in  the  hands  of 
a  bona  fide  holder  for  value.  We  think  it  also  settled  that  nego- 
tiable paper  in  the  hands  of  a  bona  fide  holder  for  value  is  not 
subject  to  any  defense  which  would  avoid  it  in  the  hands  of  the 
original  holder,  unless  some  statute,  either  expressly  or  by  neces- 
sary implication,  so  declares.  We  affirm  the  proposition,  denied  by 
plaintiff's  counsel,  that  though  the  statute,  "by  necessary  implica- 
tion, make  the  contract  made  in  violation  thereof  absolutely  void  as 
to  non-negotiable  contracts,  and  as  to  negotiable  contracts  in  the 
hands  of  persons  having  knowledge  of  the  defects,  yet  *  *  *  the 
statute  will  not  be  considered  to  have  that  effect  should  the  con- 
tract be  negotiable  in  form,  and  be  found  in  the  hands  of  a  bona  fide 
holder."  No  strength  is  added  to  the  foregoing  proposition  by  say- 
ing that  the  statute,  by  implication,  makes  void  all  non-negotiable 
contracts,  and  negotiable  contracts  in  the  hands  of  persons  having 
knowledge  of  the  defect ;  for  it  follows  from  elementary  legal  prin- 
ciples that  all  such  contracts  are  unenforceable  if  the  original  con- 
tract in  the  hands  of  the  first  parties  thereto  cannot  be  enforced. 


243  Contract  of  the  Certifier 

Nor  is  strength  added  to  the  proposition  by  saying  that  such  con- 
tracts are  "absolutely  void."  If  they  cannot  be  enforced  in  the 
hands  of  the  original  holders,  we  see  no  reason  for  quarreling  with 
a  person  who  chooses  to  call  them  absolutely  void,  though  others 
might  describe  them  as  voidable.  See  Thompson  v.  Samuels, 
(Tex.)  14  S.  W.  143.  It  follows  that  plaintiff's  counsel  deny 
that  negotiable  paper  can  be  enforced  in  the  hands  of  a  bona 
fide  holder  for  value,  if  it  arises  from  a  contract  which,  by 
implication  of  law,  is  void  or  unenforceable  between  the  original 
parties.  In  our  judgment,  the  principle  so  denied  is  a  correct 
statement  of  the  law.  If  it  were  otherwise,  all  negotiable  paper 
arising  out  of  illegal  and  forbidden  transactions  would  be  void  in 
the  hands  of  bona  fide  holders  for  value,  and  yet  nothing  is  better 
settled,  by  principle  and  authority,  as  we  have  already  shown, 
than  that  such  paper  is  valid. 

There  remains  to  be  considered  this  question :  Does  the  stat- 
ute, by  necessary  implication,  or  by  implication,  even,  make  the 
check  void  in  the  hands  of  a  bona  fide  holder  for  value?  We 
have  already  seen  that  such  implication  cannot  be  found  from  the 
circumstance  that  the  certification  is  prohibited  and  made  a  crime. 
It  is  insisted,  however,  that  the  intent  of  the  legislature  to  make  the 
check  void  in  the  hands  of  a  bona  fide  holder  is  indicated  by  other 
circumstances.  It  is  contended  that  the  purpose  of  the  legislature 
in  enacting  this  law  was  "to  protect  the  citizens,  depositors,  and 
stockholders  against  such  an  act  as  was  committed  in  the  case  at 
bar,"  viz.,  an  attempt  to  withdraw  the  funds  of  the  bank  by  means 
of  a  check  falsely  certified,  and  that,  to  make  this  purpose  effect- 
ual, the  check  must  be  held  void  in  the  hands  of  a  bona  fide  pur- 
chaser. If  it  were  true  that  the  sole  purpose  of  the  statute  was 
to  protect  the  depositors  and  stockholders  of  a  bank  against  the 
criminal  acts  of  its  own  officials,  this  argument  would  be  very 
forcible.  Are  we  warranted  in  declaring  that  the  sole  purpose  of 
the  legislature  in  passing  this  statute  was  to  protect  banks  and 
their  depositors  from  the  consequences  of  criminal  misconduct 
of  their  officials,  and  that  there  were  not  other  purposes,  which 
would  fail  if  plaintiff's  construction  of  the  act  prevails?  We 
must  bear  in  mind  that  the  legislature,  in  passing  this  statute  in 
1887,  had  not  learned  the  lessons  taught  by  the  disastrous  failure 
of  the  City  Savings  Bank  in  1902,  which  occasions  this  litigation, 
though  counsel  do  not  agree  as  to  precisely  what  lessons  are 
taught  by  this  failure.  We  shall  not,  therefore,  be  materially 
aided — indeed,  we  are  rather  likely  to  be  misled — if  we  look  to 
that  disaster  to  throw  light  upon  the  legislative  purposes.     The 


Union  Trust  Co.  v.  Preston  National  Bank.  249 

legislature  has  not,  by  this  statute,  expressly  declared  its  purpose. 
Its  purpose,  then,  is  to  be  inferred.  While  we  are  bound  to  infer 
that  one  of  its  purposes  was  to  protect  the  bank  and  its  depositors 
from  the  criminal  conduct  of  its  officials,  it  is  likewise  to  be 
inferred  that  there  was  a  broader  purpose,  viz.,  to  protect  safe 
banking  generally.  We  may  infer  the  legislative  purpose  on  the 
assumption  that  the  law  was  made  to  be  observed,  as  well  as  on 
the  assumption  that  it  would  be  violated.  If  the  law  is  observed, 
we  can  readily  see  that  it  will  benefit,  and  thus  infer  the  legislative 
purpose  to  benefit,  not  merely  the  depositors  and  stockholders  of 
banks  whose  officers  are  called  upon  to  certify  checks,  but  all 
persons  taking  such  checks.  In  other  words,  the  observance  of 
this  law  tends  to  increase  the  certainty  of  the  payment  of  certified 
checks  and  to  promote  safe  banking. 

In  the  case  at  bar,  the  allowance  of  the  certified  check  will 
inure  to  the  benefit  of  the  stockholders  of  defendant  bank,  and 
to  the  damage  to  the  depositors  of  the  City  Savings  Bank,  repre- 
sented by  plaintiff.  But  the  law  we  declare  in  this  case  will  cer- 
tainly apply  to  a  case,  if  such  a  case  should,  as  it  may,  arise,  where 
the  allowance  of  such  a  check  inures  to  the  benefit  of  the  depos- 
itors of  the  bank  which  takes  it,  and  damages  no  one  but  the 
stockholders  of  the  bank  whose  officials  criminally  certified  it. 
Such  a  case  would  be  presented  here  if  the  payment  of  the  check 
under  the  consideration  would  not  sensibly  impair  the  capital  of 
the  City  Savings  Bank,  and  if  the  funds  withdrawn  by  its  means 
from  defendant  had  rendered  it  impossible  for  the  latter  to  pay  its 
depositors.  And  in  such  a  case,  under  plaintiff's  contention,  the"\ 
court  should  say  that  the  legislature  intended  to  prefer  the  interest  ( 
of  the  stockholders  of  the  bank  whose  officers  were  guilty  of  ( 
criminal  misconduct,  to  that  of  the  depositors  of  another  bank 
damaged  by  such  misconduct.  We  do  not  think  we  are  warranted 
in  imputing  to  the  legislature  such  an  intent.  We  think  it  not 
improper  to  infer  that  it  was  the  legislative  purpose  to  protect  the 
interests  of  thejtockholders  and  depositors  of  all  banks,  and  not 
rnerebTthe^ stockholders  and  depositors  of  particular  banks  whose 
officials  might  be  guilty  of  criminal  misconduct. 

^"The  language  of  the  statute  prohibiting  the  certification  does 
not  compel  the  conclusion  that  its  sole  purpose  was  to  protect  the 
bank  and  its  depositors  against  the  criminal  misconduct  of  its 
officials.  Certification  of  a  check  is  prohibited  and  made  a  crime 
"unless  the  amount  thereof  actually  stands  to  the  credit  of  the 
drawer  upon  the  books  of  the  banks."  It  will  thus  be  observed 
that  certification  is  forbidden  even  though  the  drawer  has  funds 


250  Contract  of  the  Certifier 

in  the  bank  which  do  not  stand  to  his  credit  upon  the  bank's 
books,  and  certification  is  not  forbidden  if  the  amount  of  the 
certified  check  is  credited  upon  the  books,  though  that  credit  is 
fictitious.  In  making  the  last  statement,  we  have  not  forgotten 
that  plaintiff  contends  that  the  statute  does  forbid  certification 
where  the  entry  upon  the  books  is  fictitious ;  but,  as  stated  above, 
we  do  not  agree  with  this  contention.  The  statute  in  such  case 
forbids  the  fictitious  entry ;  it  does  not  forbid  the  false  certifica- 
tion resulting  therefrom.  In  many  cases  the  distinction  might  be 
unimportant ;  in  others  it  might  be  very  important.  Suppose  the 
bookkeeper  or  cashier  of  the  bank  made  the  fictitious  entry,  and 
the  teller,  acting  in  the  best  of  faith,  relying  thereon,  certified  a 
check.  No  reasonable  construction  of  the  act  would  make  this 
certification  a  crime,  or  bring  it  within  the  statutory  prohibition. 
It  will  thus  be  seen  that  certification  is  prohibited  in  a  class  of 
cases  where  the  depositors  and  stockholders  of  the  bank  whose 
officers  violated  the  law  cannot  be  injured,  and  it  is  permitted  in 
a  class  of  cases  where  they  are  injured.  If  the  sole  purpose  of  the 
act  has  been  to  protect  the  depositors  and  stockholders  of  the  bank 
whose  officers  were  guilty  of  this  misconduct,  different  language 
would  have  been  used.  We  are  not,  therefore,  warranted  in  saying 
that  this  act  was  passed  solely  for  the  purpose  of  protecting  the 
bank  and  its  depositors  from  the  criminal  misconduct  of  its  offi- 
cers. We  are  warranted  in  declaring  that  there  was  a  legislative 
purpose  in  passing  this  act  which  would  be  defeated  by  the  con- 
struction contended  for  by  plaintiff. 

If  the  section  is  construed  as  the  plaintiff  contends, — if  checks 
duly  certified  are  void  in  the  hands  of  bona  fide  holders  because 
the  amount  thereof  did  not  stand  to  the  credit  of  the  drawer  on 
the  books  of  the  bank, — this  consequence  follows:  Certified 
checks,  instead  of  being,  as  heretofore,  the  negotiable  paper  of 
the  bank,  and  passing  as  current  upon  the  faith  of  the  bank's 
credit,  will  pass,  if  at  all,  only  upon  the  credit  of  the  particular 
bank  official  who  certified  it.  Every  person  to  whom  a  certified 
check  is  offered  will  be  called  upon  to  determine,  not  the  credit 
of  the  certifying  bank,  not  the  authority  of  the  certifying  official, 
but  the  integrity  and  diligence  of  that  official.  Though  one  may 
have  all  confidence  in  such  integrity  and  diligence,  he  may  hesitate 
to  take  the  check,  because  he  fears  that  others  to  whom  he  may 
wish  to  transfer  it  lack  such  confidence.  It  will  result,  therefore, 
that  certified  checks,  instead  of  being  regarded  in  commercial 
circles  with  credit  and  favor,  as  heretofore,  will  be  regarded  with  a 
degree  of  suspicion,  and  are  likely  to  be  discredited.    If  the  legis- 


Union  Trust  Co.  v.  Preston  National  Bank  251 

latnre  intended  this  consequence, — and  they  must  have  intended  it 
if  they  intended  that  the  act  should  receive  the  construction  con- 
tended for  by  plaintiff, — it  seems  strange  that  they  left  their  intent 
to  be  ascertained  as  a  matter  of  doubtful  inference ;  it  seems 
strange  that  they  still  left  to  banks  the  power  of  certifying  checks, 
without  any  clear  suggestion  that  such  power  was  so  greatly  lim- 
ited. "If  the  legislature  intended  the  consequences  claimed,  we 
should  expect  it  to  say  so."  (Press  Co.  v.  Bank,  7  C.  C.  A.,  at 
page  249,  58  Fed.  322). 

It  is  suggested,  rather  than  urged,  by  plaintiff's  counsel,  that 
on  the  authority  of  Spitzer  v.  Village  of  Blanchard,  82  Mich.  234 
(46  N.  W.  400),  the  statute  under  consideration  should  be  con- 
strued as  denying  to  the  teller  authority  to  bind  his  principal,  the 
bank,  by  the  certificate  under  consideration.  In  Spitacr  v.  Village 
of  Blanchard  it  was  held  that  bonds  issued  by  a  village  in  excess 
of  the  amount  authorized  by  its  incorporation  act  are  void  in  the 
hands  of  a  bona  fide  holder,  the  court  saying  (page  246)  : 

"The  amount  of  the  bonds  to  be  issued  was  known,  and 
appears  upon  the  face  of  the  bonds.  The  assessed  valuation  and 
the  vote  of  the  electors  are  matters  of  public  record,  and  are  open 
to  all  the  world  for  inspection  and  ascertainment,  and  are  as  acces- 
sible to  intending  purchasers  as  other  persons.  The  limitation 
of  power  upon  the  common  council  appears  in  the  public  statute, 
and  is  presumed  to  be  known  by  all  dealing  with  corporate  author- 
ities or  in  corporate  bonds." 

To  show  the  distinction  between  that  case  and  the  case  at  bar, 
we  quote  from  other  language  in  that  opinion  (page  244)  : 

"Where  there  is  a  total  want  of  power,  under  the  law,  in  the 
officers  or  board  who  issue  the  bonds,  then  the  bonds  will  be  void 
in  the  hands  of  innocent  holders ;  the  distinction  being  between 
questions  of  fact  and  questions  of  law.  If  it  is  a  question  of  fact, 
and  the  board  of  officers  are  authorized  by  law  to  determine  the 
fact,  then  their  determination  is  final  and  conclusive." 

If  it  were  necessary  to  further  distinguish  that  case  from  the 
case  at  bar,  we  cannot  do  better  than  quote  the  language  of  dis- 
tinguished jurists.  Said  Mr.  Justice  Selden  in  Farmers'  & 
Mechanics'  Bank  v.  Butchers'  &  Drovers'  Bank,  16  N.  Y.  135 
(69  Am.  Dec.  678)  : 

"It  is,  I  think,  a  sound  rule  that  where  the  party  dealing  with 
an  agent  has  ascertained  that  the  act  of  the  agent  corresponds  in 
every  particular  in  regard  to  which  such  party  has,  or  is  presumed 


252  Contract  of  the  Certifier 

to  have,  any  knowledge,  with  the  terms  of  the  power,  he  may  take 
the  representation  of  the  agent  as  to  any  extrinsic  fact  which  rests 
peculiarly  within  the  knowledge  of  the  agent,  and  which  cannot 
be  ascertained  by  a  comparison  of  the  power  with  the  act  done 
under  it." 

Said  Justice  Davis  in  New  York,  etc.,  R.  Co.  v.  Schuyler,  34 
N.  Y.,  at  page  73: 

"Where  the  principal  has  clothed  his  agent  with  power  to  do 
an  act  upon  the  existence  of  some  extrinsic  fact  necessarily  and 
peculiarly  within  the  knowledge  of  the  agent,  and  of  the  existence 
of  which  the  act  of  executing  the  power  is  itself  a  representation, 
a  third  person  dealing  with  such  agent  in  entire  good  faith  pur- 
suant to  the  apparent  power  may  rely  upon  the  representation." 

If  authority  is  needed  for  the  proposition,  which  seems  obvi- 
ous, that  the  certification  in  question  related  to  an  act  peculiarly 
within  the  teller's  knowledge,  we  refer  to  Oakland  County  Sav. 
Bank  v.  State  Bank  of  Carson  City,  113  Mich.  284  (71  N.  W. 
453,  67  Am.  St.  Rep.  463). 

It  is  also  urged  that  it  was  the  intention  of  the  framers  of  the 
general  banking  act  to  follow  generally  the  provisions  of  the 
national  banking  law,  and  that  we  are  warranted  in  inferring  an 
intent  to  avoid  a  check  falsely  certified,  in  the  hands  of  a  bona  fide 
holder,  from  certain  changes, — particularly  from  the  fact  that, 
when  section  19  (2  Comp.  Laws,  §  6108)  was  framed,  language 
was  omitted  which  in  the  corresponding  section  of  the  national 
banking  law,  viz.,  section  5208,  Rev.  Stat.  U.  S.,  clearly  indicated 
the  purpose  of  Congress  to  make  such  checks  valid.  This  conten- 
tion deserves  attention.  Section  5208,  Rev.  Stat.  U.  S.,  makes  it 
unlawful  to  certify  any  check,  not,  as  provided  in  section  19, 
unless  the  amount  actually  stands  to  the  credit  of  the  drawer  on 
the  books  of  the  bank,  but  unless  the  drawer  "has  on  deposit 
*  *  *  an  amount  of  money  equal  to  the  amount  specified  in 
such  check."  Then  follows  the  provision  omitted  from  section 
19:  "Any  check  so  certified  by  duly  authorized  officers  shall  be  a 
good  and  valid  obligation  against  the  association."  It  will  be 
observed  that  the  language  omitted  in  framing  section  19,  in  form, 
at  least,  and  possibly  in  reality  (see  1  Morse,  Banking  [4th  Ed.], 
§414),  makes  the  prohibited  check  valid,  even  though  not  in  the 
hands  of  a  bona  tide  holder.  The  omission  of  this  sentence,  there- 
fore, in  section  19,  may  well  be  attributed  to  some  other  purpose 
than  the  intent  to  make  such  checks  void  in  the  hands  of  a  bona 
fide  purchaser.    We  can  well  understand  the  reluctance  of  a  legis- 


First  National  Bank  v.  Leach  253 

lature  to  use  language  which,  even  by  inference,  made  such  checks 
valid  in  whosesoever  hands  they  might  be. 

It  results  from  these  views  that  the  trial  court  erred  in  deny- 
ing defendant  the  right  to  prove  that  it  received  this  check  after 
certification,  on  the  day  it  was  drawn,  in  the  usual  course  of  bus- 
iness, and  paid  full  value  therefor,  without  notice  or  knowledge 
of  any  infirmity,  or  of  the  fact  that  the  account  of  the  drawer  was 
overdrawn. 

The  court  has  received  unusual  aid  from  the  excellent  argu- 
ments and  briefs  of  counsel  representing  the  parties  interested  in 
this  litigation.  Without  such  aid,  we  could  not  have  reached  so 
speedy  a  decision. 

Judgment  reversed,  and  new  trial  ordered. 

Moore,  C.J.,  Montgomery  and  Hooker,  JJ.,  concurred. 
Grant,  J.,  did  not  sit. 


fyen    &x\ 


WHERE  HOLDER  PROCURES  CHECK  TO  BE  CERTIFIED.  §  I90. 

First  Nat.  Bank  v.  Leach  (1873),  52  N.  Y.  550. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  first  judicial  department,  affirming  a  judgment  in 
favor  of  defendant,  entered  upon  a  verdict. 

This  action  was  brought  upon  a  check  drawn  by  defendant. 
The  check  was  drawn  upon  the  Ocean  National  Bank,  was  dated 
November  21st,  1871,  for  $1,410,  payable  on  the  12th  December, 
1 87 1,  to  the  order  of  James  Dolby.  It  was  delivered  to  the  payee 
and  discounted  for  him  by  plaintiff-.  At  eleven  o'clock  a.  m.  of 
the  12th  December,  plaintiff  caused  the  same  to  be  presented  to 
the  drawee  for  certification,  and  it  was  certified  as  good.  The 
drawer  had  at  that  time  on  deposit  sufficient  to  pay  the  check,  and 
the  amount  thereof  was  charged  to  him.  Within  an  hour  or  two 
thereafter  the  Ocean  National  Bank,  the  drawee,  suspended,  and 
a  receiver  was  appointed,  who  took  possession  afterward ;  upon 
the  same  day  the  check  was  presented  for  payment,  and  payment 
being  refused,  the  same  was  duly  protested. 

Upon  this  state  of  facts  the  court  directed  a  verdict  for 
defendant,  to  which  plaintiff's  counsel  duly  excepted. 

William  F.  Shepard,  for  the  appellant. 
Louis  C.  Waehner,  for  the  respondent. 


254  Holder  Procuring  Check  to  be  Certified 

Peckham,  J.  The  defendant  drew  the  check  in  controversy, 
it  was  discounted  by  the  plaintiff,  and  on  the  day  it  was  due  it 
was  presented  by  plaintiff  to  the  drawee,  the  Ocean  Bank,  for 
certification,  was  certified  as  good,  and  in  the  afternoon  of  the 
same  day  was  presented  for  payment,  which  was  refused,  because 
between  the  time  of  its  certificate  and  its  second  presentment  the 
drawee,  the  Ocean  Bank,  had  failed  and  gone  into  the  hands  of 
a  receiver.  Did  this  certification  operate  as  a  payment  of  the 
check  as  between  these  parties? 

The  theory  of  the  law  is,  that  where  a  check  is  certified  to 
be  goodby  a  bank,  the  amount  thereof  is  then  charged  to  the 
account  of  the  drawer  in  the  bank  certificate  account  Every  well 
regulated  bank  adopts  this  practice  to  protect  itself. 

The  reason  therefor  is  so  strong  that  the  law  presumes  it  is 
adopted  by  the  banks.  (Smith  v.  Miller,  43  N.  Y.  171  ;  Meads 
v.  The  Merchants'  Bk.  of  Albany,  25  id.  148;  The  Farmers'  & 
Mechanics'  Bk.  v.  Butchers'  &  Drovers'  Bk.,  16  id.  125 ;  Mer- 
chants' Bk.  v.  State  Bk.,  10  Wall.  647.)  It  is  found  to  have  been 
done  in  this  case. 

If  a  bank  failed  to  keep  such  account  and  to  make  such 
entries,  it  would  necessarily  incur  the  peril  of  the  failure  of  its 
customers  whose  checks  it  certified,  without  any  account  of  their 
number  or  amount,  although  it  would  be  liable  to  pay  its  certified 
checks  to  bona  fide  holders,  whether  it  had  funds  or  not.  (Farm- 
ers' &  Mech.  Bk.  v.  Butchers'  &  Drovers'  Bk.,  supra.) 

It  follows  that,  after  a  check  is  certified,  the  drawer  of  the 
check  cannot  draw  out  the  funds  then  in  the  bank  necessary  to 
meet  the  certified  check.    That  money  is  no  longer  his. 

If  he  apprehended  danger  from  the  suspected  failure  of  the 
bank,  he  could  not  draw  out  that  money,  because  it  had  already 
been  appropriated  by  means  of  the  check  thus  certified ;  as  to  him, 
it  was  precisely  as  if  the  bank  had  paid  the  money  upon  that 
check  instead  of  making  a  certificate  of  its  being  good. 

For~that  reTs^rth^^r^weF'coiild  have~nb  remecly  against 
the  bank,  by  any  legal  proceeding,  to  secure  himself  for  the 
amount  of  that  check.  Hence,  if  the  drawer  should  get  the 
check  back,  he  would  strictly  be  entitled  to  get  that  money,  not 
by  virtue  of  its  original  deposit,  but  solely  by  surrender  of  the 
certified  check,  like  any  other  holder. 

But  all  that  has  been  yet  stated  applies  with  equal  force  to 
the  acceptance  of  a  time  bill  of  exchange  before  due.  Then, 
when  the  drawee  accepts,  it  is  an  appropriation  of  the  funds, 
pro  tanto,  for  the  service  and  use  of  the  payee  or  other  person 


First  National  Bank  v.  Leach  255 

holding  the  bill,  so  that  the  amount  ceases  henceforth  to  be  the 
money  of  the  drawer,  and  becomes  that  of  the  payee  or  other 
holder  in  the  hands  of  the  acceptor.  (Story  on  Bills  of  Ex., 
§  14;  i  Pars,  on  Notes  and  Bills,  323.) 

It  is  entirely  clear  that  the  acceptance  of  a  time  draft,  before 
due,  does  not  operate  as  a  payment  as  respects  the  drawer.  Its 
only  effect  is  to  make  the  acceptor  the  primary  party  to  pay  the 
draft. 

But  the  parties  to  a  certified  check,  due  when  certified, 
occupy  a  different  position.  There  the  money  is  due  and  payable 
when  the  check  is  certified.  The  bank  virtually  says  that  check 
is  good ;  we  have  the  money  of  the  drawer  here  ready  to  pay  it. 
We  will  pay  it  now,  if  you  will  receive  it.  The  holder  says  no. 
I  will  not  take  the  money ;  you  may  certify  the  check  and  retain 
the  money  for  me  until  this  check  is  presented. 

The  law  will  not  permit  a  check,  when  due,  to  be  thus  pre- 
sented  and  the  money  to  be  left  with  the  bank  for  the  accommo- 
datTo~h~~"bf  the  holder,  without  discharging  the  drawer. 

The  money  being  due  and  the  check  presented,  it  is  his  own 
fault  if  the  holder  declines  to  receive  the  pay,  and  for  his  own 
convenience  has  the  money  appropriated  to  that  check,  subject 
to  its  future  presentment  at  any  time  within  the  statute  of 
limitations. 

The  acceptance  of  a  time  draft  before  due  is  entirely  dif- 
ferent ;  there  the  holder  has  then  no  right  to  the  money,  and  the 
acceptor  no  authority  to  pay  until  the  maturity  of  the  bill.  There 
is  no  necessity  for  presenting  a  check  for  acceptance,  like  a  time 
bill,  no  authority  for  such  presentment,  although  the  holder  has 
the  right  to  do  it.  The  authority  and  the  duty  are  to  present 
for  payment. 

If,  however,  the  holder  choose  to  have  it  certified  instead  of 
paid,  he  will  do  so  at  the  peril  of  discharging  the  drawer. 

He  cannot  change  the  position  and  increase  the  risk  of  the 
drawer  without  discharging  him.     (Smith  v.  Miller,  supra.) 

This  would  not  discharge  the  drawer  of  a  check,  who  him- 
self procured  it  to  be  certified  and  then  put  it  in  circulation.  The 
reason  of  the  rule  fails  to  apply  to  him  in  such  case. 

I  am  not  aware  of  any  direct  authority  upon  this  question; 
but  upon  principle  it  must  be  held  that  the  bank  holds  the  money, 
after  certification  to.  the  holder,  not  at  the  risk  of  the  drawer,  but 
of  the  holder  of  the  check. 

The  judgment  must  be  affirmed. 

All  concur.  Judgment  affirmed.  \^ 


~>  \ 


256  Drawer  Procuring  Check  to  he  Certified 

where  drawer  procures  check  to  be  certified.     §  190. 

Minot  v.  Russ  \  (1892),  136  Mass.  458,32  Am. 

Head  ct  al.  v.  Hornblowcr  et  al.  j       St.  Rep.  472. 

\  n*  -  Field,  C.J.  The  first  case  is  an  appeal  from  a  judgment 
rendered  by  the  Superior  Court  for  the  defendant,  on  his  demur- 
rer to  the  declaration.  The  defendant,  on  October  29,  1891,  drew 
a  check  on  the  Maverick  National  Bank,  payable  to  the  order  of 
the  plaintiff,  and,  being  informed  by  the  plaintiff  that  the  check 
must  be  certified  by  the  bank  before  it  would  be  received,  the 
dffenilant  on  the  same  day  presented  the  check  to  the  bank  for 
certification,  and  the  bank  certified  it  by  writing  on  the  face  of 
the  check  the  following:  "Maverick  National  Bank.  Pay  only 
through  Clearing-House.  J.  W.  Work,  Cashier.  A.  C.  J.,  Paying 
Teller."  After  it  was  certified,  the  check  was,  on  Saturday,  Octo- 
ber 31,  1 891,  delivered  by  the  defendant  to  the  plaintiffs,  for  a 
valuable  consideration.  The  declaration  alleges  that  the  bank 
stopped  payment  on  Monday  morning,  November  2,  1891,  "before 
the  commencement  of  business  hours  on  said  day,"  and  that  on 
that  day  payment  wras  duly  demanded  of  the  bank,  and  notice  of 
non-payment  was  duly  given  to  the  defendant, 
a.  ~A  ot>-e-«.  The  second  case  is  an  appeal  from  a  judgment  rendered  for 
the  defendants  by  the  Superior  Court,  on  an  agreed  statement 
of  facts.  On  Saturday,  October  31,  1891,  the  defendants  drew 
their  check  on  the  Maverick  National  Bank,  payable  to  the  order 
of  the  plaintiffs,  and  delivered  it  to  them  in  payment  of  stocks 
bought  by  the  defendants  of  the  plaintiffs.  The  check  was 
received  too  late  to  be  deposited  by  the  plaintiffs  for  collection 
in  season  to  be  carried  to  the  clearing-house  on  that  day,  but 
during  banking  hours  on  that  day  the  plaint  jiffs  presented  the 
check  to  the  Maverick  National  Bank  for  certification,  and  the 
bank  certified  it  by  writing  or  stamping  on  its  face  the  following : 
"Maverick  National  Bank.  Certified.  Pay  only  through  Clear- 
ing-House.    C.  C.  Domett,  A.  Cashier.     ,  Paying  Teller." 

At  that  time  the  defendants  had  on  deposit  sufficient  funds 
to  pay  the  check,  and  the  bank  on  certification  charged  to  the 
defendant's  account  the  amount  of  the  check,  and  credited  it  to 
a  ledger  account  called  certified  checks,  in  accordance  with  their 
uniform  custom.  After  certification,  the  plaintiffs,  on  the  same 
day,  deposited  the  check  in  the  Hamilton  National  Bank  for 
collection.     It  is  agreed  that  if  the  check  had  been  presented 


Minot  v.  Russ  267 

for  payment  on  Saturday,  in  banking  hours,  it  would  have  been 
paid;  but  the  Maverick  National  Bank  transacted  no  business 
after  Saturday,  and  on  Sunday  the  Comptroller  of  the  Currency 
placed  a  national  bank  examiner  in  charge,  and  the  bank  was 
put  into  the  hands  of  a  receiver.  The  clearing-house  on  Novem- 
ber 2  refused  to  receive  checks  on  the  Maverick  National  Bank, 
and  the  check  was  on  that  day  duly  presented  for  payment,  and 
due  notice  of  non-payment  was  given  to  the  defendants. 

Each  of  the  checks  was  in  the  ordinary  form  of  checks  on  a 
bank,  and  was  payable  on  demand,  and  no  presentment  for  accept- 
ance or  certification  was  necessary.  In  a  sense,  undoubtedly,  a 
check  is  a  species  of  bill  of  exchange,  and  in  a  sense  also  it  is  a 
distinct  commercial  instrument ;  but  according  to  the  general 
understanding  of  merchants,  and  according  to  our  statutes,  these 
instruments  were  checks,  and  not  bills  of  exchange.  "A  check  is 
an  order  to  pay  the  holder  a  sum  of  money  at  the  bank,  on  pre- 
sentment of  the  check  and  demand  of  the  money;  no  previous 
notice  is  necessary,  no  acceptance  is  required  or  expected,  it  has 
no  days  of  grace.  It  is  payable  on  presentment  and  not  before." 
Bullard  v.  Randall,  i  Gray,  605,  606.  The  duty  of  the  bank 
was  to  pay  these  checks  when  they  were  presented  for  payment, 
if  the  drawers  had  sufficient  funds  on  deposit.  The  bank  owed  no 
duty  to  the  drawers  to  certify  the  checks,  although  it  could  certify 
them  if  it  saw  fit,  at  the  request  of  either  the  drawers  or  the 
holders,  and  if  it  certified  them  it  became  bound  directly  to  the 
holders,  or  to  the  persons  who  should  become  the  holders.  In 
either  case,  the  bank  would  charge  to  the  account  of  the  drawer 
the  amount  of  the  check,  because  by  certification  it  had  become 
absolutely  liable  to  pay  the  check  when  presented.  When  a 
check  payable  to  another  person  than  the  drawer  is  presented 
by  the  drawer  to  the  bank  for  certification,  the  bank  knows  that 
it  has  not  been  negotiated,  and  that  it  is  not  presented  for  pay- 
ment, but  that  the  drawer  wishes  the  obligation  of  the  bank  to 
pay  it  to  the  holder  when  it  is  negotiated,  in  addition  to  his  own 
obligation.  But  when  the  payee  or  holder  of  a  check  presents 
it  for  certification,  the  bank  knows  that  this  is  done  for  the 
convenience  or  security  of  the  holder.  The  holder  could  demand 
payment  if  he  chose,  and  it  is  only  because,  instead  of  payment, 
the  holder  desires  certification,  that  the  bank  certifies  the  check- 
instead  of  paying  it.  In  one  case  the  bank  certifies  the  check  for 
the  use  or  convenience  of  the  drawer,  and  in  the  other  for  the 
use  or  convenience  of  the  holder.  In  the  present  case  the  checks 
were  seasonably  presented  to  the  bank  for  payment,  and  on  the 


258  Drawer  Procuring  Check  to  be  Certified 

facts  stated  the  defendants  would  be  liable  unless  the  certification 
discharged  them  from  liability. 

It  is  argued  that  the  certification  of  a  check,  whereby  the  bank 
becomes  absolutely  liable  to  pay  it  at  any  time  on  demand,  dis- 
charges the  drawer,  because  it  is  said  that  the  check  then  becomes 
in  effect  a  certificate  of  deposit ;  and  it  is  also  argued  that  the 
certification  is  in  effect  only  an  acceptance  of  a  bill  of  exchange, 
and  that  if  payment  is  duly  demanded  of  the  bank  and  refused, 
and  notice  of  non-payment  duly  given,  the  drawer  is  held.  So 
far  as  the  question  has  been  considered,  it  has  been  decided  that 
the  certification  of  a  bank  check  is  not,  in  all  respects,  like  the 
making  of  a  certificate  of  deposit,  or  the  acceptance  of  a  bill 
of  exchange,  but  that  it  is  a  thing  sui  generis,  and  that  the 
effect  of  it  depends  upon  the  person  who,  in  his  own  behalf,  or 
for  his  own  benefit,  induces  the  bank  to  certify  the  check.  The 
weight  of  authority  is,  that  if  the  drawer  in  his  own  behalf,  or 
for  his  own  benefit,  gets  his  check  certified,  and  then  delivers  it 
to  the  payee,  the  drawer  is  not  discharged ;  but  that  if  the  payee 
or  holder,  in  his  own  behalf  or  for  his  own  benefit,  gets  it  -cer- 
tified instead_of  getting  it  paid,  then  the  drawer  is  discharged. 
(Bom  v.  First  National  Bank,  123  Ind.  78;  Rounds  v.  Smith,  42 
111.  245;  Brown  v.  Leckie,  43  111.  497;  Andrews  v.  German 
National  Bank,  9  Heisk.  211;  First  National  Bank  v.  Leach, 
52  N.  Y.  350;  Boyd  v.  Nasmith,  17  Ont.  40;  Essex  County 
National  Bank  v.  Bank  of  Montreal,  7  Biss.  193 ;  First  National 
Bank  v.  Whitman,  94  U.  S.  343,  345  ;  Metropolitan  National  Bank 
v.  Jones,  27  N.  E.  Rep.  533 ;  Continental  National  Bank  v.  Corn- 
hauser,  37  111.  App.  475 ;  National  Commercial  Bank  v.  Miller, 
77  Ala.  168;  Larsen  v.  Breene,  12  Col.  480;  Mutual  National 
Bank  v.  Rotge,  28  La.  An.  933 ;  Morse  on  Banking,  §§  414,  415.) 
We  are  of  opinion  that  this  view  of  the  law  rests  on  sound 
reasons.  If  it  be  true  that  the  existing  methods  of  doing  business 
make  the  use  of  certified  checks  necessary,  the  persons  who  receive 
them  can  always  require  them  to  be  certified  before  delivery.  If 
they  receive  them  uncertified  and  then  present  them  to  the  bank 
for  certification  instead  of  payment,  the  certification  should  be 
considered  as  discharging  the  drawer. 

It  may  also  be  said,  that  in  the  second  case  the  certification 
amounted  to  an  extension  of  the  time  of  payment  at  the  request 
of  the  payees,  without  the  consent  of  the  drawers.  Before  the 
certification  the  drawers  could  have  requested  the  payee  to  pre- 
sent the  check  for  payment  on  Saturday,  or  could  themselves 
have  drawn  out  the  money  and  paid  the  check.     After  certifica- 


Fairchild  v.  Ogdensburgh  R.  R.  Co,  259 

tion  the  amount  of  the  check  no  longer  stood  to  the  credit  of  the 
drawers,  and  the  payees  had  accepted  an  obligation  of  the  bank 
to  pay  only  through  the  clearing-house,  which  could  not  happen 
before  the  following  Monday.  The  result  is  that  in  the  first  case 
the  judgment  is  reversed,  and  the  demurrer  overruled,  and  in 
the  second  case  the  judgment  is  affirmed. 

So  ordered. 

F.  Bretvster,  for  the  plaintiff  in  the  first  case.         \  pJc  oo-aj*-^  ^La*^- 

F.  R.  Jones,  for  the  defendant  in  the  first  case.        9~^-^A  c^*-^,  ^*\- 

W.  C.  Loring,  for  the  plaintiffs  in  the  second  case. 

C.  A.  Williams,  for  the  defendants  in  the  second  case. 


CONTRACT  OF  THE  DRAWER   WHEN    HE  DRAWS  ON   HIMSELF. 

§§63,    Il6— I. 

Fairchild  v.  Ogdensburgh  R.  R.  Co.   (1857),  15  N.  Y.  337,  69 

Am.  Dec.  606. 

Appeal  from  a  judgment  of  the  Supreme  Court  in  favor  of 
the  plaintiff  .  The  action  was  upon  certain  orders  for  the  pay- 
ment of  money,  the  contention  for  the  defense  being  that  the 
instruments  were  bills  of  exchange  and  were  not  enforceable 
without  proof  of  presentment  to  the  drawee,  demand  of  payment 
and  refusal.     Other  facts  are  stated  in  the  opinion. 

T.  Jenkins,  for  the  appellant. 

J.  H.  Reynolds,  for  the  respondent. 

Denio,  C.  J.  The  complaint  contains  a  distinct  averment 
of  an  indebtedness  by  the  defendant  to  the  plaintiffs,  for  work 
and  labor  to  an  amount  equal  to  the  sum  claimed.  The  paper 
which  it  is  alleged  was  given  for  this  indebtedness  was  not  a 
bill  of  exchange.  The  idea  of  a  bill,  under  the  law  merchant, 
supposes  the  existence  of  a  party  other  than  the  drawee,  to  whom 
the  bill  is  addressed,  and  who  is  therein  requested  to  pay  the 
amount  to  the  holder  on  account  of  the  drawer.  Here  the  party 
with  whom  the  plaintiffs  dealt  was  the  corporation  which,  being 
an  artificial  person,  could  only  act  by  agents.  The  president  was 
one  agent,  and  the  treasurer  was  another,  and  as  a  convenient 
method  of  keeping  the  accounts,  the  former,  whose  duty  it  was 
to  adjust  the  claims  for  labor,  made  his  warrant  in  favor  of  the 
plaintiffs  on  the  treasurer,  who  was  entrusted  with  the  duty  of 


2ou  Contract  gf  Drawer 

keeping  the  money  and  paying  it  out  on  proper  vouchers.  Both 
the  drawee  of  the  order  and  the  party  to  whom  it  was  addressed 
represented  the  corporation ;  and  neither  incurred,  or  were 
expected  to  incur,  any  personal  obligation.  The  default  of  either, 
in  performing  any  duty  respecting  the  order,  would  be  the  default 
of  the  corporation,  and  would  not  subject  either  of  them  to  any 
individual  liability.  The  giving  of  the  order  for  the  debt  of  the 
corporation,  was  a  method  suggested  by  motives  of  convenience 
for  transacting  its  business  and  keeping  its  accounts.  To  require 
of  the  holder  of  such  a  draft,  the  kind  of  diligence  which  the 
law  exacts  of  the  holder  of  commercial  paper,  would  be  a  per- 
version of  its  object.  It  is  argued  by  the  defendant's  counsel, 
that  the  plaintiffs  having  taken  a  draft  on  the  defendant's  treas- 
urer, for  his  debt,  they  must  be  understood  to  have  assented  to 
their  forms  of  doing  business,  and  should  be  holden  to  make  a 
presentment  of  the  draft  before  suing  the  company.  It  would 
certainly  be  wrong  to  allow  the  creditor  in  such  a  case  to  subject 
the  company  to  costs,  when  the  funds  are  ready,  and  when  the 
money  would  be  paid  upon  the  presentation  of  the  paper.  But 
the  answer  to  the  argument  is,  that  the  creditor  will  be  defeated 
in  his  action,  as  to  damages  and  costs,  if  the  company  are  able 
to  show  that  its  treasurer  was  furnished  with  funds,  and  would 
have  paid  the  demand  if  he  had  been  called  on.  It  becomes,  then, 
a  question  as  to  the  onus  probandi.  In  Wolcott  v.  Van  Santvoord, 
ly  John.  248,  it  was  settled,  upon  much  consideration,  that  in  an 
action  against  the  acceptor  of  a  bill,  or  the  maker  of  a  note,  pay- 
able at  a  particular  place,  it  is  not  necessary  for  the  palintift"  to 
aver  or  prove  a  demand  of  payment  at  the  time  and  place 
appointed.  This  has  been  considered  the  unquestioned  law  ever 
since  the  judgment  in  that  case,  a  period  of  nearly  forty  years. 
After  such  an  acquiescence  in  a  principle  of  such  constant  appli- 
cation, and  which  relates  to  the  most  practical  of  subjects,  the 
effect  of  commercial  paper,  we  cannot  listen  to  the  suggestion  of 
the  defendant's  counsel,  that  the  prior  cases  in  England  are  the 
other  way.  If,  upon  examination,  we  found  them  to  be  so.  we 
should  not  depart  from  the  rule  as  we  find  it  settled  and  univer- 
sally acted  on  in  this  state.  The  drafts  which  the  plaintiffs 
received  for  their  debt  against  this  corporation,  are  in  the  nature 
of  promissory  notes,  payable  at  the  office  of  the  treasurer  of  the 
company.  Though  in  the  form  of  bills,  they  contain  an  acknowl- 
edgment in  writing  of  their  indebtedness  to  the  plaintiffs  in  the 
amounts  mentioned  in  them,  and  an  undertaking,  in  effect,  to  pay 
these  amounts  at  the  treasurer's  office.    In  Miller  v.  Thomson  (3 


Caunt  v.  Thompson  261 

Manning  &  Gr.,  576),  the  Court  of  Common  Pleas,  in  England, 
determined  that  an  instrument  in  the  form  of  a  bill  of  exchange, 
drawn  upon  a  joint  stock  bank,  by  the  manager  of  one  of  its 
branches,  by  order  of  the  directors,  might  be  declared  upon  as  a 
promissory  note.  The  chief  justice  said  there  was  the  absence  of 
the  circumstance  of  there  being  two  distinct  parties,  as  drawer 
and_dra_wee,  which,  he  said,  was  essential  to_tlie_constitutipn_^f 
ajbill  of  exchange.  That  being  so,  he  added,  the  jjnly  alternative 
is__that  this  instrument  is  a  promissory  note,  and  is  properly 
declared  upon  as  such.  We  adopt  the  principle  of  this  case,  which 
is  strictly  applicable  to  the  one  before  us.  The  issue,  therefore, 
which  was  joined  upon  the  question  whether  these  orders  had  been 
presented  for  payment,  was  an  immaterial  one,  and  the  Supreme 
Court  was  right  in  its  judgment. 

Shankland,  J.,  delivered  an  opinion  to  the  same  effect,  and 
all  the  judges  concurred,  except  Comstock  and  Brown,  who  not 
having  heard  the  argument  took  no  part  in  the  decision. 

Judgment  affirmed.     -t^.   <oSL&s**- 


CONTRACT    OF    DRAWER    AS    EXECUTOR    OR    TRUSTEE    OF    DRAWEE  S 

ESTATE.  §§63,116 — 3. 

Caunt  v.  Thompson  {1849),  7  M.  G.  &  S.  400,  62  E.  C.  L.  399. 

Cresswell,  J.,  now  delivered  the  judgment  of  the  court. 

This  was  an  action  of  assumpsit  by  the  endorsee,  against  the 
drawer,  of  a  bill  of  exchange. 

The  declaration  alleged  that  the  bill  was  drawn  by  the  defend- 
ant on  J.  Whitley,  payable  to  the  order  of  the  drawer  two  months 
after  date,  that  the  bill  was  accepted  by  Whitley,  and  endorsed 
by  the  drawer  to  Tomlin,  and  by  Tomlin  to  the  plaintiff,  and  that 
the  bill,  when  due,  was  presented  to  Whitley,  and  dishonoured, 
of  which  the  defendant  had  notice. 

The  defendant  pleaded, — first,  that  the  bill  was  not  duly  pre- 
sented to  Whitley, — secondly,  that  the  defendant  had  no  notice 
of  the  dishonour  of  the  bill. 

At  the  trial  before  Wilde,  C  J.,  at  the  sittings  in  Middlesex 
after  Michaelmas  term,  1847,  ^  appeared  in  evidence,  that,  before 
the  bill  became  due,  the  acceptor  died,  having  made  the  defendant 
(the  drawer)  his  executor,  and  that  he  had  proved  the  will;  that, 
when  the  bill  became  due,  the  plaintiff  sent  one  of  the  witnesses 


> 


262  Drawer  as  Executor  or  Trustee 

to  the  house  of  the  acceptor,  to  present  the  bill ;  that  the  witness 
there  saw  the  defendant,  to  whom  he  presented  the  bill,  saying, — 
"I  have  brought  a  bill  from  Caunt's :  you  know  what  it  is;"  and 
that  thereupon  the  defendant  said, — "I  am  executor  of  Whitley : 
you  must  persuade  Caunt  to  let  the  bill  stand  over  a  few  days, 
because  Whitley  has  only  been  dead  a  few  days :  I  shall  see  the 
bill  paid." 

Upon  this  evidence,  the  plaintiff  applied  for  leave  to  amend 
his  declaration,  by  averring  the  death  of  the  acceptor,  the  appoint- 
ment of  the  defendant  as  his  executor,  and  the  presentment  of  the 
bill  to  him. 

The  lord  chief  justice  allowed  the  amendment  to  be  made, 
and  said  that  the  proof  of  presentment  to  the  executor  was  not 
sufficient  proof  of  notice  of  dishonour. 

A  verdict  was  thereupon  taken  for  the  plaintiff  on  the  first 
issue,  and  for  the  defendant  on  the  second ;  leave  being  reserved 
to  the  plaintiff  to  move  to  enter  a  verdict  on  that  issue  in  his 
favour,  or  for  judgment  non  obstante  veredicto;  and  leave  being 
likewise  reserved  to  the  defendant  to  move  on  the  ground  that 
the  amendment  ought  not  to  have  been  made. 

Cross  rules  were  accordingly  obtained  in  Hilary  term,  1848. 

At  the  argument,  we  disposed  of  the  defendant's  rule,  think- 
ing the  amendment  properly  allowed :  and  now,  after  considera- 
tion, we  think  that  the  plaintiff's  rule,  to  enter  a  verdict  in  his 
favour  on  the  second  issue,  must  be  made  absolute. 

It  may  be  assumed  to  be  a  settled  rule,  that  knowledge  of 
the  probability,  however  strong,  that  a  bill  of  exchange  will  be 
dishonoured,  cannot  operatea£_a_noticc  of  dishonour,  or  dispense 
with  it.  Fothier,  Contrat  de  Change,  Part  1.  c.  5,  §  147,  (citing 
Savary,  parer.  45)  lays  down  the  same  rule  with  reference  to 
foreign  ("Foreign"  as  opposed  to  "English,"  not  as  opposed  to 
"inland")  bills,  viz.,  that  the  notorious  insolvency  of  the  acceptor 
of  a  bill  does  not  dispense  with  protest  for  non-payment,  and 
notice  to  the  prior  parties,  because  the  insolvency  of  the  acceptor, 
however  notorious,  may  not  be  known  to  them,  or,  in  the  absence 
oTlwtice^jhev  may  suppose  that  the  acceptor,  though  insolvent, 
has  found  means  to  take  up  the  l.nH.  So  also  it  may  be  considered 
as  settled,  that  information  that  a  bill  has  been  dishonoured, 
derived  from  a  person  not  having  authority  to  give  it,  does  not 
supply  the  place  of  notice.  Hence  it  lias  become  usual  to  say  that 
knowledge  of  the  dishonour  of  a  bill  is  not  equivalent  to  notice. 

fill!  ill  a       ._r__r-^-;-p- , .  ■        ■     m.'  '    '     -~  ,  ~-  -,       .■■■  ■  ~~~^- 

n  such  cases  as  those  above  mentioned,  it  certainly  is  not. 

The  law  has  not  been  so  well  settled  as  to  the  nature  of  the 


Caunt  v.  Thompson  263 

notice  to  be  given.  In  Hartley  v.  Case,  4  B.  &  C.  339,  Abbott, 
C.  J.,  said :  "There  is  no  precise  form  of  words  necessary  to  be 
used  in  giving  notice  of  the  dishonour  of  a  bill  of  exchange ;  but 
the  language  used  must  be  such  as  to  convey  notice  to  the  party 
what  the  bill  is,  and  that  payment  of  it  has  been  refused  by  the 
acceptor."  Since  that  case  was  decided,  there  has  been  some  fluc- 
tuation of  opinion  on  the  subject.  In  Solarte  v.  Palmer,  7  Bingh. 
530,  5  M.  &  P.  475,  1  Tyrwh.  371,  1  C.  &  J.  417,  which  was  finally 
decided  in  the  House  of  Lords  (1  N.  C.  194,  1  Scott  1,  8  Bligh. 
N.  S.  874) ,  a  very  strict  rule  was  adopted ;  but  that  has  not  been 
adhered  to.  In  Burgh  v.  Legge,  5  M.  &  W.  418,  Parke,  B.,  says : 
"There  must  be  proof  of  a  notice  given  from  some  party  entitled 
to  call  for  payment  of  this  bill,  and  conveying  in  its  terms  intelli- 
gence of  the  presentment,  dishonour,  and  parties  to  be  held  liable 
in  consequence."  But,  in  Furze  v.  Sharwood,  2  Q.  B.  388,  and 
King  v.  Bickley,  2  Q.  B.  419,  it  was  decided  that  the  notice  need 
not,  in  terms,  inform  the  party  to  whom  it  is  given,  that  he  is 
looked  to  for  payment:  and,  in  Micrs  v.  Brown,  11  M.  &  W.  372, 
these  latter  decisions  were  followed. 

The  rule  does  not  differ  in  substance  from  that  given  by  Ash- 
hurst,  J.,  in  Tindal  v.  Brown,  1  T.  R.  167 : — "Notice  means  some- 
thing more  than  knowledge ;  because  it  is  competent  to  the  holder 
to  give  credit  to  the  maker.  (The  action  was  on  a  promissory 
note.)  It  is  not  enough  to  say  that  the  maker  does  not  intend  to 
pay,  but  that  he,  the  holder,  does  not  intend  to  give  credit."  In 
substance,  these  cases  seem  to  establish,  that,  in  order  to  make  a 
prior  holder  responsible,  he  must  derive,  from  some  person  entitled 
to  call  for  payment,  information  that  the  bill  has  been  dishonoured, 
and  that  the  party  is  in  a  condition  to  sue  him,  from  which  he 
may  infer  that  he  will  be  held  responsible.  In  Miers  v.  Brown, 
Alderson,  B.,  describes  what  is  needful,  in  these  terms :  "Knowl- 
edge of  the  dishonour  obtained  from  a  communication  by  the 
holder  of  the  bill,  amounts  to  notice." 

Tn  the  present  case,  the  defendant  knew  that  the  bill  was  dis- 
honoured ;  and  he  knew  it  from  the  best  source,  namely,  his  own 
personal  act  in  dishonouring  it  when  presented  by  the  holder :  and 
he  knew,  from  the  same  source,  that  time  had  not  been  given  to 
the  acceptor.  He  had,  therefore,  all  the  information  which, 
according  to  Ashhurst,  J.,  the  notice  ought  to  convey :  and,  know- 
ing that,  he  would  know  also  that  the  holder  had  placed  himself 
in  a  situation  to  call  upon  him  (the  drawer)  for  payment,  from 
which, — to  adopt  the  view  of  modern  decisions, — he  might  infer 
that  he  would  be  called  upon.     This  is  very  different  from  that 


264        Drawer  Without  Right  to  Expect  Acceptance 

knowledge  which  has  been  spoken  of  as  not  equivalent  to  notice, 
and  is  at  least  as  much  notice  as  the  knowledge  spoken  of  by 
Alderson,  B.,  in  Miers  v.  Brown.  Indeed,  there  would  be  some 
absurdity  in  requiring  that  the  plaintiff  should  have  stated  to  the 
defendant  at  the  time  when  he  dishonoured  the  bill,  "Take  notice 
that  this  bill  has  been  dishonoured  by  you."  Lord  Ellenborough 
seems  to  have  been  of  that  opinion  in  the  case  of  Porthouse  v.  Par- 
ker, i  Camp.  82,  an  action  by  the  payee  against  the  drawer  of  a 
bill.  It  was  drawn  by  one  Wood  as  agent  of  George  James  and 
John  Parker,  upon  John  Parker.  There  was  no  proof  that  Wood 
had  authority  to  draw :  but  evidence  being  given  that  the  bill  was 
accepted  by  a  duly-authorized  agent  for  John  Parker,  Lord  Ellen- 
borough  held  that  it  was  evidence  of  the  bill  having  been  regularly 
drawn  ;  and  that,  the  acceptor  being  likewise  a  drawer,  there  would 
be  no  occasion  for  the  plaintiff  to  prove  that  the  defendants  had 
received  express  notice  of  the  dishonour  of  the  bill,  as  this  must 
necessarily  have  been  known  to  one  of  them ;  and  the  knowledge 
of  one  was  the  knowledge  of  all. 

Upon  the  authority  of  that  case,  and  upon  principle,  we  think 
that  the  notice  to  the  defendant_in  this  case  was  established,  and 
that  the  verdict  should  be  entered  for  the  plaintiff  on  the  issue  on 
the  second  plea. 

Plaintiff's  rule  absolute. 

Defendant's  rule  discharged. 


i>^  *^JL^-A~V. 


CONTRACT    OF    DRAWER    WITHOUT    RIGHT    TO    EXPECT    ACCEPTANCE. 

§  Il6— 4. 

Cathell  v.  Goodwin  {1827),  1  H.  &  G.  (Md.)  468. 

Assumpsit  on  an  instrument,  of  which  the  following  is  a 
copy: 

Mr.  Jno.  Gooding — 

Pay  to  the  order  of  Mrs.  Cathell  five  hundred  dollars  and 
charge  the  same  to  your  ob.  st.  Robt.  M.  Goodwin. 

$500,  June  24th,  1818. 

Verdict  and  judgment  for  the  defendant. 
Plaintiff  appealed. 

Dorsey,  J.,  at  this  term  delivered  the  opinion  of  the  court.  To 
support  the  opinion  of  the  court  below,  the  appellee's  counsel  have 
relied  on  three  positions,   (either  of  which,  if  tenable,  would  be 


Cathell  v.  Goodwin  263 

sufficient  for  their  purpose)  viz.,  i.  That  Mrs.  Matilda  Cathell 
was  not  competent  to  demand  payment  of  the  bill.  2.  That  she 
consented  to  receive  a  conditional  acceptance,  and  thereby  gave 
time  to  the  acceptor.  3.  That  the  drawer  had  reasonable  grounds 
to  expect  that  his  bill  would  have  been  honoured. 

There  is  nothing  to  sustain  the  first  position.  The  defendant 
has  in  express  terms,  authorised  Mrs.  Cathell  to  receive  the 
amount  of  the  bill.  To  deny  her  the  right  to  demand  it,  would  be 
sanctioning  an  absurdity  for  the  mere  purpose  of  working  injus- 
tice. 

The  second  position  is  equally  untenable.  The  facts  stated  in 
the  bill  of  exceptions  would  not  have  warranted  the  jury  in  finding 
Mrs.  Cathell's  acceptation  of  a  conditional  acceptance  of  the  bill, 
much  less  are  they  of  that  conclusive,  resistless  character  which 
would  authorise  the  court  to  assume  the  fact,  to  the  ascertainment 
of  which  a  jury  only  were  competent. 

The  third  position  was  that  most  obstinately  contended  for, 
which  was  conceived  to  be  impregnably  forfeited  by  that  part  of 
the  rule  established  in  Eichelbergcr  v.  Finley  &  Van  Lear,  7  Harr, 
&  Johns.  381,  which  dispenses  with  notice  only  where  the  drawer 
had  no  reasonable  grounds  to  expect  that  his  bill  would  be  hon- 
oured. The  reasonableness  of  such  expectation  is  matter  for  the 
court,  and  not  for  the  jury,  to  decide.  If  the  facts,  upon  which 
the  question  arises,  be  admitted  or  be  undeniable,  then  the  ques- 
tion becomes  exclusively  a  matter  of  law  to  be  pronounced  by  the 
court ;  but  if  the  facts  be  controverted,  or  the  proof  be  equivocal 
or  contradictory,  then  it  becomes  a  mixed  question  both  of  law 
and  fact,  in  which  case,  the  court  hypothetically  instruct  the  jury 
as  to  the  law,  to  be  by  them  pronounced  accordingly  as  they  may 
find  the  facts.  What  are  the  facts  to  be  found  in  this  case  justi- 
fying the  drawer's  expectation  that  his  draft  would  have  been 
paid?  So  far  from  having  funds  in  the  drawer's  hands,  he  was 
his  debtor — no  proof  of  such  a  commercial  intercourse  between 
them  as  would  imply  a  mutual  credit — no  previous  promise  bv  the 
drawee  to  accept  this  or  any  other  draft  for  the  drawer's  accom- 
modation— no  consignment  of  goods  to  the  drawee,  which  the 
drawer  had  any  reason  to  expect  would  be  received  in  time  to 
meet  his  bill,  but  the  only  proof  is,  that  thejirawee  informed  the 
payee^that  he  expected  funds  of  the  drawer  would  _s_hortlv_com_e 
tojnsliands,  with  which,  when  received,  he  would  pay.  That 
funds  afterwarcTsT  did  arrive,  but  whether  in  one  month,  or  five 
years  after,  does  not  appear.  What  may  have  been  the  expecta- 
tions of  the  drawee,  as  to  the  receipt  of  funds  from  the  drawer, 


266  Indorsement  and  Delivery 

is  immaterial ;  they  are  not  even  admissible  evidence  in  this  cause. 
But  if  they  were,  they  can  have  no  influence  on  those  of  the  drawer 
— into  whose  expectations  only  is  the  enquiry  to  be  made.  The 
facts  in  the  cases  of  Lcgge  v.  Thorpe,  12  East,  170,  and  Claridge 
v.  Dalton,  4  Maule  &  Selw.  226,  afford  much  stronger  evidence 
of  a  reasonable  expectation  in  the  drawers  that  their  bills  would 
be  honoured,  than  those  in  the  present  case ;  yet  there  they  were 
adjudged  insufficient.  The  "reasonable  grounds"  required  by  law 
are  not  such  as  would  excite  an  idle  hope,  a  wild  expectation,  or 
a  remote  probability,  that  the  bill  might  be  honoured,  but  such  as 
create  a  full  expectation,  a  strong  probability  of  its  payment ;  such 
indeed  as  would  induce  a  merchant  of  common  prudence  and  ordi- 
nary regard  for  his  commercial  credit,  to  draw  a  like  bill.  The 
facts  in  this  case  constitute  no  such  reasonable  grounds.  We 
therefore  think  that  the  county  court  erred  in  instructing  the  jury 
that  the  plaintiff  was  not  entitled  to  recover,  and  consequently 
reverse  their  judgment. 

Judgment  reversed,  and  procedendo  awarded. 


-^f*-*-  rx^Qs^U^  - 


Sec.  VI. — Of  Negotiation  in  General. 

indorsement  and  delivery.  §  32. 

Geary  v.  Physic  (1826),  5  B.  &  C.  234;  11  E.  C.  L.  442. 

Assumpsit  by  the  plaintiff  as  indorsee  against  the  defendant 
as  maker  of  a  promissory  note  for  the  sum  of  30/.  payable  two 
months  after  date  to  the  order  of  one  Folder,  and  indorsed  by  him, 
Folder,  to  one  Kemp,  who  subsequently  indorsed  the  note  to  the 
plaintiff.  At  the  trial  before  Abbott,  C.  J.,  at  the  London  sittings, 
after  Hilary  term,  1825,  it  appeared  that  the  indorsement  by 
Kemp,  to  the  plaintiff  was  in  pencil,  and  it  was  thereupon  objected 
that  the  plaintiff  could  not  recover ;  an  indorsement  in  pencil  not 
being  such  an  indorsement  as  the  law  and  custom  of  merchants 
recognizes  to  be  sufficient  to  pass  the  interest  in  a  bill  of  exchange, 
and  promissory  notes  being  by  the  statute  3  &  4  Ann.  c.  9,  s.  I, 
assignable  or  indorsable  in  the  same  manner  as  unpaid  bills  of 
exchange  are  according  to  the  custom  of  merchants.  The  Lord 
Chief  Justice,  thought  it  sufficient,  and  directed  the  jury  to  find  a 
verdict  for  the  plaintiff,  reserving  liberty  to  the  defendant's  coun- 


Geary  v.  Physic  267 

sel  to  move  to  enter  a  non-suit,  if  the  court  should  be  of  opinion 
that  the  indorsement  of  the  promissory  note  in  pencil,  was  not  a 
good  and  valid  indorsement.  F.  Pollock,  in  last  Easter  term, 
obtained  a  rule  nisi  to  enter  a  nonsuit. 

Thcsiger,  now  showed  cause. 

Abbott,  C.  J.  There  is  no  authority  for  saying  that  where 
the  law  requires  a  contract  to  be  in  writing,  that  writing  must  be 
in  ink!  The  passage  cited  from  Lord  Coke,  shows  that  a  deed 
must  be  written  on  paper  or  parchment,  but  it  does  not  show  that 
it  must  be  written  in  ink.  That  being  so,  I  am  of  opinion  that  an 
indorsement  on  a  bill  of  pxrhangp  may  h^  hy  writing  in  pencil? 
There  is  not  any  great  danger  that  our  decision  will  induce  indi- 
viduals to  adopt  such  a  mode  of  writing  in  preference  to  that  in 
general  use.  The  imperfection  of  this  mode  of  writing,  its  being  so 
subject  to  obliteration,  and  the  impossibility  of  proving  it  when  it 
is  obliterated,  will  prevent  its  being  generally  adopted.  There  being 
no  authority  to  show  that  a  contract  which  the  law  requires  to  be 
in  writing  should  be  written  in  any  particular  mode,  or  with  any 
specific  material,  and  the  law  of  merchants  requiring  only  that  an 
indorsement  of  bills  of  exchange  should  be  in  writing  (see  the 
custom  stated  in  Lutwidge,  878),  without  specifying  the  manner 
with  which  the  writing  is  to  be  made,  I  am  of  opinion  that  the 
indorsement  in  this  case  was  a  sufficient  indorsement  in  writing 
within  the  meaning  of  the  law  of  merchants,  and  that  the  property 
in  the  bill  passed  by  it  to  the  plaintiff. 

Bayley,  J.  I  think  that  a  writing  in  pencil  is  a  writing  within 
the  meaning  of  that  term  at  common  law,  and  that  it  is  a  writing, 
within  the  custom  of  merchants.  I  cannot  see  any  reason  why, 
when  the  law  requires  a  contract  to  be  in  writing,  that  contract 
shall  be  void  if  it  be  written  in  pencil.  If  the  character  of  the 
handwriting  were  thereby  wholly  destroyed,  so  as  to  be  incapable 
of  proof,  there  might  be  something  in  the  objection ;  but  it  is  not 
thereby  destroyed,  for,  when  the  writing  is  in  pencil,  proof  of  the 
character  of  the  handwriting  may  still  be  given.  I  think,  there- 
fore, that  this  is  a  valid  writing  at  common  law,  and  also  that  it 
is  an  indorsement  according  to  the  usage  and  custom  of  mer- 
chants ;  for  that  usage  only  requires  that  the  indorsement  should 
be  in  writing,  and  not  that  that  writing  should  be  made  with  any 
specific  materials. 

Holroyd,  J.,  concurred. 

Rule  discharged. 


268  Indorsement  and  Delivery 

Brown  v.  The  Butchers'  &  Drovers'  Bank  (1844),  6  Hill  (N.  Y.) 

443- 

On  error  from  the  superior  court  of  the  city  of  New  York, 
where  the  Butchers  &  Drovers'  Bank  sued  Brown  as  the  endorser 
of  a  bill  of  exchange,  and  recovered  judgment.  The  endorsement 
was  made  with  a  lead  pencil,  and  in  figures,  thus,  "1.  2.  8.,"  no 
name  being  written.  Evidence  was  given  strongly  tending  to 
show  that  the  figures  were  in  Brown's  handwriting,  and  that  he 
meant  they  should  bind  him  as  endorser ;  though  it  also  appeared 
he  could  write.  The  court  below  charged  the  jury  that,  if  they 
believed  the  figures  upon  the  bill  were  made  by  Brown,  as  a  sub- 
stitute for  his  proper  name,  intending  thereby  to  bind  himself  as 
endorser,  he  was  liable.  Exception.  The  jury  found  a  verdict 
for  the  plaintiffs  below,  on  which  judgment  was  rendered,  and 
Brown  thereupon  brought  error. 

C.  De  Witt,  for  the  plaintiff  in  error. 
A.  Schell,  for  the  defendants  in  error. 

-  .         .  •  By  the  court,  Nelson,  Ch.  J.    It  has  been  expressly  decided 

"^^  that  an  endorsement  written  in  pencil  is  sufficient;    {Geary  v. 

Cer  <c*a>—  Physic,  5  Barn.  &  Cress.  234;)  and  also  that  it  may  be  made  by 

L-<»-^-i^  L-5~tA~-«Oca  mark.  .  {George  v.  Surrey,  1  Mood.  &  Malk.  516).  In  a  recent 
Jc  (vs-^fxAA^"  case  in  the  K.  B.  it  was  held  that  a  mark  was  a  good  signing 
o^KjijiLft.  Ayv/A*«r  within  the  statute  of  frauds ;  and  the  court  refused  to  allow  an 
enquiry  into  the  fact  whether  the  party  could  write,  saying  that 
would  make  no  difference.  {Baker  v.  Dening,  8  Adol.  &  Ellis, 
94;  and  see  Harrison  v.  Harrison,  8  Ves.  186;  Addy  v.  Grix,  id. 

504)- 

These  cases  fully  sustain  the  ruling  of  the  court  below.  They 
show,  I  think,  that  a  person  may  become  bound  bv  any  mark  or 
designation  he  thinks  proper  to  adopt,  provided  it  be  used  as  a 
substitute  for  his  name,  and  he  intend  to  bind  himself. 

Judgment  affirmed. 


Day  v.  Longhurst  {1893),  Ch.  Div.  41  W.  R.  283. 


~oSL-^-v>\ 


Motion. 


This  was  a  motion  to  commit  the  defendant  Longhurst  and 
his  solicitor,  Young,  for  contempt  of  court. 

On  the  1st  of  July,  1892,  an  order  was  made  in  this  action 
restraining  the  defendant  over  the  8th  of  July  from  "negotiating, 


Day  v.  Longhurst  269 

pledging,  or  disposing  of"  certain  bills  of  exchange.  This  interim 
order  was  from  time  to  time  continued  down  to  the  22nd  of 
November,  1892.  Previously  to  the  commencement  of  the  action 
the  bills  in  question  (which  were  payable  to  the  defendant's  order) 
had  been  deposited  by  him  with  Young  by  way  of  security  for  a 
debt,  but  had  not  been  indorsed,  and  they  had  since  continued  in 
Young's  possession.  On  the  5th  of  October,  1892,  while  the 
interim  order  was  in  force,  the  defendant,  at  the  request  of  Young, 
indorsed  one  of  them ;  and  the  motion  to  commit  the  defendant 
and  his  solicitor  for  contempt  of  court  was  thereupon  made. 
The  Bills  of  Exchange  Act,  1882,  provides,  as  follows : — 
Section  2. — "Bearer"  means  the  person  in  possession  of  a  bill 
or  note  which  is  payable  to  bearer.  "Holder"  means  the  payee 
or  indorsee  of  a  bill  or  note  who  is  in  possession  of  it,  or  the 
bearer  thereof. 

Section  31  (1). — A  bill  is  negotiated  when  it  is  transferred 
from  one  person  to  another  in  such  a  manner  as  to  constitute  the 
transferee  the  holder  of  the  bill.  Sub-section  (3). — A  bill  pay- 
able to  order  is  negotiated  by  the  indorsement  of  the  holder 
completed  by  delivery.  Sub-section  (4). — Where  the  holder  of  a 
bill  payable  to  his  order  transfers  it  for  value  without  indorsing  it, 
the  transfer  gives  the  transferee  such  title  as  the  transferor  had  in 
the  bill,  and  the  transferee,  in  addition,  acquires  the  right  to  have 
the  indorsement  of  the  transferor. 

Hastings,  Q.C.,  and  Szvinfen  Eady,  for  the  plaintiff. 
Buckley,  Q.C.,  and  Leans  Edmunds,  for  the  respondents. 

Stirling,  J.,  after  referring  to  the  definition  of  "bearer"  and 
"holder"  in  the  Bills  of  Exchange  Act,  1882,  s.  2,  continued : — 
Previously  to  the  5th  of  October,  1892,  Young  was  neither 
"bearer"  nor  "holder"  of  the  bills  in  question.  The  former  term 
applies  only  to  the  person  in  possession  of  a  bill  or  note  payable 
to  bearer,  which  this  was  not,  and  the  latter  to  a  payee  or  indorsee 
of  a  bill  or  note,  which  Young  was  not.  [His  lordship  then  read 
section  31,  sub-sections  1  and  3,  and  said: — ]  Previously  to  the 
5th  of  October,  1892,  the  bill  had  not  been  transferred  to  Young 
so  as  to  constitute  him  the  holder  of  the  bill,  for  he  was  not 
"payee"  or  "indorsee,"  therefore  the  bill  was  not  up  to  that  date 
negotiated.  On  the  5th  of  October,  1892,  the  bill,  being  in  the 
possession  of  Young/was  for  the  first  time  indorsed  by  the  defend- 
ant. Young,  who  up  to  that  time  had  been  merely  the  transferee, 
of  the  bill,  now  for  the  first  time  became  the  "holder"  of  it  within 


270  Irregular  Forms  of  Indorsement 

the  meaning  of  the  Hills  of  Exchange  Act,  and  the  bill  was  for 
■the  first  time  "negotiated^within  the  meaning  of  sub-section  I 
of  section  31;  consequently  the  defendant  by  his  act  on  the  5th 
of  October,  1892,  converted  Young  from  a  mere  transferee  into 
a  holder  of  the  bill,  and,  in  my  opinion,  negotiated  the  bill,  con- 
trary to  the  interim  order  which  had  been  made. 

On  behalf  of  the  respondents  reliance  was  placed  on  sub- 
section 4  of  section  31.  No  doubt  that  sub-section  shows  that 
Young  had,  prior  to  the  5th  of  October,  1892,  the  right  to  have 
the  indorsement  of  the  defendant,  and,  consequently,  to  sue  the 
defendant  if  he  refused  to  indorse  the  bill.  That,  however,  did 
not  justify  the  defendant  in  violating  the  order  of  the  court.  If 
proceedings  were  taken  or  threatened  by  Young,  the  defendant 
ought  to  have  applied  either  that  the  injunction  might  be  removed, 
so  as  to  enable  him  to  give  effect  to  Young's  rights,  or  else  to 
have  Young  made  a  party  to  the  action.  The  latter  alternative, 
however,  the  defendant  actually  declined,  in  the  course  of  the 
hearing  of  the  motion.  In  my  opinion  the  defendant  has  violated 
the  order  of  the  court.  I  do  not,  however,  regard  the  case  as  one 
of  serious  contempt,  and  as  regards  costs  I  think  justice  will  be 
met  if  I  order  the  defendant  to  pay  those  of  the  applicant  and 
leave  Young  to  pay  his  own. 

Motion  dismissed. 


IRREGULAR  FORMS  OF  INDORSEMENT.  §  33. 

Markey  v.  Corey  (1895),  108  Mich.  184,  36  L.  R.  A.  117,  62  Am. 

St.  Rep.  698. 

Error  to  Wayne ;  Lillibridge,  J. 

Assumpsit  by  Matthew  M.  Markey  and  Catherine  Sundars 
against  Lorenzo  Corey,  impleaded  with  George  H.  Waldo  and 
Alden  M.  Varney,  on  a  promissory  note.  From  a  judgment  for 
plaintiff's,  defendant  brings  error.    Affirmed. 

Edgar  Weeks  (Moore  &  Moore,  of  counsel),  for  appellant. 
Ervin  Palmer,  for  appellees. 

Long,  J.  Defendant  Corey  entered  into  a  written  contract 
with  Waldo  and  Varney  for  the  sale  of  certain  personal  property 
at  the  sum  of  $2,500,  payable  $200  the  first  year,  $500  the  second, 
and  $600  each  year  thereafter,  until  the  whole  amount  should  be 


Markey  v.  Corey  271 

paid,  according  to  five  promissory  notes  executed  at  the  same 
time.  The  contract  also  provided  that  certain  stock  should  be 
deposited  by  the  purchasers  as  further  security  for  the  payments. 
It  was  then  provided : 

"But  in  case  said  payments  shall  not  be  made  as  above  pro- 
vided, and  in  case  either  or  any  of  said  payments  shall  remain 
unpaid  for  the  period  of  90  days,  then  the  party  of  the  first  part 
shall,  at  his  option,  have  the  right  to  declare  the  whole  remaining 
amounts  represented  by  said  notes  to  have  become  due  and  pay- 
able." 

On  the  face  of  each  of  the  promissory  notes  was  written : 

"This  note  is  given  in  accordance  with  the  terms  of  a  certain 
contract  under  the  same  date,  between  the  same  parties." 

Subsequently  the  plaintiffs  received  from  defendant  Corey  an 
assignment  of  all  his  right,  title,  and  interest  in  and  to  the  con- 
tract, stock,  and  notes.  On  the  back  of  the  note  in  suit  was 
indorsed : 

"I  hereby  assign  the  within  note  to  Matthew  M.  Markey  and 
Catherine  Sundars." 

This  $500  note  was  not  paid,  and  was  protested,  and  the.; 
plaintiffs  brought  this  suit  upon  it  against  Waldo  and  Varney  as 
makers,  and  Corey  as  indorser.  The  declaration  was  upon  the 
common  counts  in  assumpsit,  with  a  copy  of  the  note  attached. 
On  the  trial,  however,  the  court  permitted  the  plaintiffs  to  amend 
the  declaration  by  averring  the  assignment  of  the  contract  and 
note.  The  case  proceeded  to  trial,  and  plaintiffs'  counsel  offered 
in  evidence  the  note  and  indorsement  of  assignment  on  it,  together 
with  the  certificate  of  protest.  Defendant's  counsel  objected  to 
their  introduction  as  against  defendant  Corey,  claiming  ( 1 )  that 
the  note  in  question  was  not  a  promissory  note,  and  that  plaintiffs 
could  not  recover  upon  it  against  Corey  as  indorser,  but  that,  if 
they  took  any  title  to  it,  it  was  under  the  assignment;  (2)  that 
the  contract  was  evidenced  by  the  note  and  the  other  writing, — 
the  contract  of  sale.  Plaintiffs'  counsel  then  put  in  evidence, 
under  objection,  the  contract  of  the  sale.  The  court  thereupon 
directed  a  verdict  in  favor  of  plaintiffs  for  the  amount  of  the  note 
and  interest,  from  which  judgment  defendant  Corey  alone  appeals. 
It  is  insisted  here,  by  counsel  for  defendant  Corey: 
1.  That,  if  the  plaintiffs  took  title  to  the  note,  it  was  under 
the  assignment,  and  that,  therefore,  they  could  not  sue  in  their 


272  Irregular  Forms  of  Indorsement 

own  names,  but,  if  they  had  a  right  of  action,  it  must  be  brought 
in  the  name  of  the  original  party  to  the  contract. 

2.  That  the  two  papers  must  be  taken  as  constituting  the 
contract,  and  that  the  note  was  not,  therefore,  a  promissory  note. 

3.  That  Corey,  by  making  the  assignment  to  the  plaintiffs, 
was  not  the  indorser  of  the  note,  and  could  not  be  held  liable  as 
such. 

The  usual  mode  of  transfer  of  a  promissory  note  is  by  simply 
writing  the  indorser's  name  upon  the  back,  or  by  writing  also  over 
it  the  direction  to  pay  the  indorsee  named,  or  order,  or  to  him  or 
bearer.  An  indorsement,  however,  may  be  made  in  more  enlarged 
terms,  and  the  indorser  be  held  liable  as  such.  In  Sands  v.  Wood, 
1  Iowa,  263,  the  indorsement  was,  "I  assign  the  within  note  to 
Mrs.  Sarah  Coffin."  In  Sears  v.  Lantz,  47  Iowa,  658,  the  indorse- 
ment on  the  note  was,  "I  hereby  assign  all  my  right  and  title  to 
Louis  Meckley."  And  in  each  case  the  party  so  assigning  was 
held  as  indorser,  the  court  in  the  latter  case  saying  of  Sands  v. 
Wood:  "He  used  no  words  that,  in  and  of  themselves,  indicated 
that  he  had  bound  or  made  himself  liable  in  case  the  maker,  after 
demand,  failed  to  pay  the  note.  But  it  was  held  the  law,  as  a 
legal  conclusion,  attached  to  the  words  used  the  liability  that  fol- 
lows the  indorsement  of  a  promissory  note."  See,  also,  Duffy's 
Adm'r  v.  O'Connor,  7  Baxt.  498;  Shelby  v.  Judd,  24  Kan.  166; 
Brotherton  v.  Street,  124  Ind.  599. 

The  rule  of  the  American  cases  is  well  stated  in  Daniel  on 
Negotiable  Instruments  (section  688c)  as  follows: 

"The  question  arising  in  such  cases  is  a  nice  one,  and  depends 
upon  rules  of  legal  interpretation.  The  mere  signature  of  the 
payee,  indorsed  on  the  paper,  imports  an  executed  contract  of 
assignment,  with  its  implications,  and  also  an  executory  contract 
of  conditional  liability,  with  its  implications.  The  assignment 
would  be  as  complete  by  the  mere  signature  as  with  the  words  of 
assignment  written  over  it.  The  conditional  liability  which  is 
executory  is  implied  by  the  executed  contract  of  assignment,  and 
the  signature  under  it,  which  carries  the  legal  title ;  and  the  ques- 
tion is,  does  the  writing  over  a  signature  an  express  assignment, 
which  the  law  imports  from  the  signature  per  se,  exclude  and 
negative  the  idea  of  conditional  liability,  which  the  law  also 
imports  if  such  assignment  were  not  expressed  in  full  ?  We  think 
not.  *  *  *  When  the  thing  done  creates  the  implication  o£ 
another  to  be  done,  we  cannot  think  that  the  mere  expression  of 
the  former  in  full  can  be  regarded  as  excluding  its  consequence, 
when  that  consequence  would  follow  if  the  expression  were 
omitted." 


Markey  v.  Corey  273 

The  language  used  in  the  assignment  to  the  note  in  suit  does 
not  negative  the  implication  of  the  legal  liability  of  the  assignor 
as  indorser,  and  as  the  words  are  to  be  construed,  as  strongly  as 
their  sense  will  allow,  against  the  assignor,  he  must  be  held  as 
indorser.  This  rule  is  fully  supported  in  Hatch  v.  Barrett,  34 
Ka-n.  230.     See,  also,  Adams  v.  Blethen,  66  Me.  19. 

In  the  case  of  Aniba  v.  Yeomans,  39  Mich.  171,  the  assign- 
ment read  as  follows:  "I  hereby  transfer  my  right,  titie,  and 
interest  of  the  within  note  to  S.  A.  Yeomans."  Mr.  Justice  Mars- 
ton  said  in  that  case : 

"The  right  or  interest  passing,  therefore,  under  the  usual  and 
customary  indorsement,  is  much  greater  than  the  mere  right,  title, 
and  interest  of  the  payee ;  and  where  the  transfer,  as  made,  only 
attempts  to  pass  the  title  and  interest  of  the  payee  of  the  note,  no 
greater  right  or  interest  than  he  then  held  can  pass." 

In  other  words,  the  learned  justice  seemed  to  think  that  the 
words  used  limited  the  transfer  to  the  right  and  title  he  then  held. 
While  this  holding  appears  to  be  at  variance  with  the  cases  else- 
where, we  think  it  readily  distinguishable  from  the  present,  as 
here  the  words  are,  "I  hereby  assign  the  within  note  to  Matthew 
M.  Markey  and  Catherine  Sundars,"  and  do  not  purport  to  limit 
the  liability  of  Corey  as  an  indorser. 

In  Stevens  v.  Hannan,  86  Mich.  307,  the  note  sued  upon  was 
negotiable  in  form,  and  made  payable  to  Batchelder,  and  he 
assigned  it  before  maturity,  as  follows :  "For  value  received,  I 
hereby  assign  all  interest  in  and  to  this  note  to  Ralph  E.  Watson." 
Defendant  insisted  in  that  case  that  the  plaintiff  could  not  sue  in 
his  own  name,  but  should  have  sued  in  the  name  of  the  payee.  It 
was  said  by  Justice  McGrath :  "I  do  not  think  the  point  is  well 
taken.  *  *  *  If  Batchelder's  indorsement  did  not  affect  its 
negotiability,  then  Watson's  indorsement  entitled  the  plaintiff,  as 
holder  of  the  note,  to  sue  in  his  own  name." 

It  must  be  held,  therefore,  that  the  memorandum  on  the  nole. 
did  not  relieve  Corey  from  his  liability  as  indorser. 

The  court  was  not  in  error  in  admitting  the  contract  in  evi- 
dence, as  its  purpose  was  to  show  that  the  note  was  not  in  fact 
limited  by  its  provisions,  and  those  provisions  of  the  contract  cited 
did  not  destroy  the  negotiability  of  the  note.  (Daniel  Neg.  Inst., 
§48). 

The  judgment  must  be  affirmed. 

The  other  justices  concurred.  f)  n 


274  Irregular  Forms  of  Indorsement 


Spencer  v.  Hal  pern  (1896),  62  Ark.  595,  36  L.  R.  A.  120. 

W.  J.  Mayo,  N.  W.  Norton,  and  /.  M.  Prcwitt,  for  appellant. 
M.  ].  Manning,  for  appellee. 

The  facts  are  sufficiently  stated  in  the  opinion. 

Wood,  J.  Appellant  made  the  following  indorsement  on  two 
promissory  notes  held  by  him,  viz. :  "For  value  received  I  hereby 
transfer  my  interest  in  the  within  note  to  Isaac  Halpern.  (Signed) 
Geo.  Spencer."  The  maker  having  failed  to  pay  at  maturity  upon 
demand,  is  appellant  bound  as  indorser  after  due  notice? 

Where  a  negotiable  instrument  is  indorsed  in  blank,  or  in 
full,  the  indorser  contracts  to  pay  the  amount  called  for  by  the 
instrument  if  it  is  not  paid  by  the  principal  on  demand  at  matur- 
ity, provided  notice  of  demand  and  non-payment  is  duly  given.  He 
also  contracts  that  the  instrument  is  genuine,  that  it  is  valid,  that 
the  parties  are  competent  to  make  it,  and  that  he  has  the  title  and 
right  to  transfer  it.  (1  Dan.  Neg.  Inst.,  sec.  669a;  Tiedeman, 
Com.  Paper,  sec.  259).  These  rights  of  the  indorsee  and  obliga- 
tions of  the  indorser,  under  an  indorsement  in  blank  or  in  full  in 
the  common  form,  are  not  expressed,  but  fixed  by  implication, 
under  the  rules  of  the  law  merchant ;  and  when  there  is  such  an 
indorsement,  there  is  nothing  for  construction.  But  when  the 
indorsement  is  in  irregular  form,  and  the  contract  is  expressed, 
it  may  become,  says  Mr.  Daniel,  "a  nice  question  for  legal  inter- 
pretation." But  we  cannot  agree  to  his  interpretation  that  an 
indorsement  containing  an  express  assignment  of  "my  interest" 
over  one's  signature  does  not  "exclude  and  negative  the  idea  of 
conditional  liability,  which  the  law  also  imports,  if  such  assign- 
ment were  not  expressed  in  full."  (1  Dan.  Neg.  Inst.,  sec.  688c). 
That  would  be  true  only  if  the  effect  of  the  signature  per  se  did 
nothing  more  than  transfer  the  interest  of  the  signer.  But,  as  we 
have  seen,  the  indorsement  in  blank  not  only  transfers  the  title 
and  interest  of  the  indorser  in  the  instrument,  but  it  does  more. 
It  confers  the  absolute  title  upon  the  indorsee,  and  gives  him 
rights  against  the  maker  which  the  payee  himself  might  not  have, 
and  imposes  upon  the  signer  all  the  legal  obligations  of  an  indorser 
mentioned  supra.     (Aniba  v.  Yeomans,  39  Mich.  171). 

We  fail  to  see  the  application  of  the  maxim  "Expressio  eorum 
quae  tacite  insunt  nihil  operatur"  in  a  case  where  all  the  implica- 
tions  of  the  law  tollowing  an  indorsement  in  blank,  or  in  full,  in 
the  regular  form,  are  not  expressed.     On  the  contrary,  it  seems. 


Spencer  v.  Halpern  275 

clear  to  us  that  the  payee,  by  expressing  one  only  of  the  implica- 
tions which  the  law  attaches  to  an  indorsement  in  blank  or  in  full, 
in  the  regular  way,  and  that  one,  too,  not  imposing  any  personal 
liability  upon  him,  excludes  every  other.  And  the  maxim  "Expres- 
sio  umiis,    etc.,  does  apply.     (Hailey  v.  Falconer,  32  Ala.  536). 

In  Michigan  the  indorsement  was  "I  hereby  transfer  my 
right,  title,  and  interest  of  the  within  note  to  S.  A.  Yeomans," 
signed  by  the  payee.  The  Supreme  Court  held  that  such  an' 
indorsement  gave  the  transferee  the  same  rights  that  the  payee 
had,  "but  none  other  or  greater."  {Aniba  v.  Yeomans,  39  Mich., 
supra).  Mr.  Tiedeman  says:  "The  declaration  that  the  payee 
assigns  or  transfers  all  his  right,  title  and  interest  in  the  paper 
would  seem  to  limit  in  a  most  effective  way  the  rights  acquired  by 
the  transferee  to  those  which  the  transferrer  had  therein,  and  thus 
prevent  the  writing  from  operating  as  an  indorsement."  (Tiede- 
man, Com.  Paper,  sec.  265). 

To  avoid  the  necessity  for  construction,  and  the  probability 
of  misconstruction,  it  would  always  be  better  for  the  one  desiring 
to  escape  the  liabilities  of  an  indorser  to  add  the  words  "without 
recourse."  But  the  question  here  is  not  what  the  appellee  should 
have  done,  but  what  did  he  actually  do?  Why  should  we  not  let 
the  contract  mean  and  have  the  effect  that  is  plaintly  expressed  by 
the  terms  "my  interest"  in  their  ordinary  acceptation  ? 

HaoVthe  payee  intended  to  be  bound  as  indorser,  why  use  so 
many  words ?  Had  the  transferee  expected  more~tFan  the  "inter- 
est" of  the  transferrer,  why  did  he  accept  the  instrument  trans- 
ferring only  his  "interest?"  We  must  accept  and  interpret  the 
completed  contract  as  the  parties  made  it.  They  have  seen  proper 
to  express  it  at  length,  and  have  used  unambiguous  terms.  Con- 
struing the  terms  "my  interest"  most  strongly  against  the  trans- 
ferrer, we  do  not  feel  authorized  to  say  they  mean  anything  more 
than  simply  "my  interest."  They  are  clearly  terms  of  limitation, 
when  used  in  an  indorsement  on  a  negotiable  instrument.  Com- 
pare Reynolds  v.  Shaver,  59  Ark.  299. 

Counsel  for  appellee  cite  us  to  cases  which  seem  to  hold  the 
contrary,  but  we  find  in  some  of  these  the  language  of  the  indorse- 
ment is  different  from  that  under  consideration,  and,  where  sim- 
ilar, the  cases  are  not  satisfactory.  With  due  respect  to  these, 
and  to  Mr.  Daniel,  we  must  conclude  that  their  conclusions  are 
illogical,  and  the  doctrine  they  announce  unsound. 

Reversed  and  remanded,  with  directions  to  sustain  the  demur- 
rer to  appellee's  set-off. 

Battle,  J.,  absent.  \r°^    o^^jJ^jdujvSL 


276  Indorsement  of  Entire  Instrument 

indorsement  must  be  of  entire  instrument.         §  34. 
Hughes  v.  Kiddell  (1801),  2  Bay  (S.  C.)  324. 

Motion  for  a  new  trial. 

This  was  an  action  against  defendant  as  endorser  on  a  note 
of  hand,  in  which  there  was  a  verdict  for  defendant.  The  note  of 
hand  in  question  was  given  by  David  Bush,  of  Camden,  to  the 
defendant  Kiddell,  for  473/.  sterling.  Kiddell  afterwards  made 
the  following  endorsement,  viz. :  "I  assign  over  to  Hudson 
Hughes,  the  sum  of  1,930  dollars  and  50  cents,  as  part  of  this 
note  of  hand. 

"Signed,  "Benjamin  Kiddell." 

Afterwards  he  made  another  endorsement,  and  assigned  over 
the  residue  of  said  note.  (Signed,  Benjamin  Kiddell.) 

Mr.  Ford,  for  the  motion,  contended,  that  both  these  endorse- 
ments ought  to  be  taken  together,  and  considered  as  one  endorse- 
ment, as  it  appeared  to  be  one  transaction,  done  at  the  same  time, 
on  the  same  day,  and  made  to  the  same  person.  He  admitted, 
that  an  endorsement  of  part  was  not  good,  but  that  the  two  parts 
in  this  case,  to  the  same  person,  made  the  whole  good ;  and  as 
such,  the  court  was  bound  to  give  it  a  reasonable  and  liberal  con- 
struction, as  it  would  not  subject  the  party  to  different  actions; 
which  was  the  reason,  why  the  law  of  merchants  would  not  admit 
of  the  splitting  up  contracts,  and  allow  of  different  endorsements 
on  bills  and  notes. 

Mr.  Pringle,  in  reply,  contended,  that  from  the  very  nature 
of  the  transaction,  it  must  have  been  the  intention  of  the  defendant 
to  restrain  the  negotiability  of  this  note,  as  well  as  to  exempt  him- 
self from  responsibility ;  taking  these  endorsements  either  sever- 
ally or  jointly,  they  amount  to  no  more  than  a  bare  authority  to 
receive  the  money,  or  a  relinquishment  of  the  defendant's  right 
to  the  note.  It  is  not  expressed  for  value  received,  so  as  to  raise 
an  implied  assumption  at  law  ;  but  the  law  is  clear  that  an  endorse- 
ment for  part  is  bad.     (Bailey  on  Bills,  34). 

For  if  it  were  allowable  for  a  man  to  endorse  for  part,  he 
might  endorse  100  dollars  to  A,  another  100  to  B,  and  so  on ; 
and  by  that  means,  defendant  might  become  liable  to  twenty  dif- 
ferent actions  on  the  same  bill.  For  these  reasons,  and  to  guard 
against  this  monstrous  inconvenience,  the  law  of  merchants  has 
established  it  as  a  rule,  that  a  bill  cannot  be  endorsed  for  part. 
(Cunn.  on  Bills,  57). 


Habersham  v.  Lehman  277 

Now  it  is  clear,  from  the  gentleman's  own  acknowledgment, 
that  the  first  endorsement  for  1,930  dollars  and  50  cents  in  part, 
is  bad  ab  initio;  and  if  so,  then  the  subsequent  endorsement  for 
the  residue  never  can  give  the  first,  legal  validity ;  as  it  is  most 
evident  to  reason  and  common  sense,  that  two  vitious  or  bad 
endorsements  can  never  constitute  a  good  whole  endorsement. 

The  court,  after  hearing  the  arguments,  refused  to  grant  a 
new  trial,  on  the  ground  that  an  endorsement  for  part  of  a  note 
or  bill  is  bad.  (Lex  Mercatoria,  445 ;  Carth.  466).  And  if  so_ 
then  two  vitious  endorsements  can  never  constitute  a  good  one. 

Rule  discharged. 

Present,  Grimke,  Waites,  Bay  and  Johnson.      .  . 


INSTRUMENT  INDORSED  IN  BLANK  AND  LATER  INDORSED  SPECIALLY. 

S36. 

Habersham  v.  Lehman  (1879),  63  Ga.  380. 

Lehman  brought  complaint  against  Habersham  on  a  note  for 
$300.00  payable  to  the  order  of  Eppinger  &  Russell,  dated  June 
1 2th,  1878,  and  due  at  ninety  days.  It  was  indorsed  as  follows: 
"Eppinger  &  Russell,  by  A.  Cyraix,  Attorney."  "Pay  C.  H. 
Dexter,  cashier,  or  order,  for  collection  on  account  of  Atlanta 
Savings  Bank  of  Georgia.  (Signed)  Lodovick  J.  Hill,  Cashier." 
The  defendant  pleaded  the  general  issue,  and  specially  the  follow- 
ing facts :  The  note  sued  on  was  fraudulently  procured  from 
defendant  in  place  of  a  non-negotiable  note  previously  given  by 
him  to  the  payees  for  certain  improvements  made  on  property  of 
his  rented  by  the  payees.  At  the  time  said  payees  obtained  the 
first  note  from  defendant,  a  distress  warrant  against  them  in  his 
favor  for  $400.00  was  pending,  for  the  rent  of  certain  wharf 
property.  The  said  note  was  given  for  improvements  placed  by 
the  payees  upon  this  property,  it  being  agreed  that  it  should 
remain  in  the  hands  of  the  payees  until  the  termination  of  the 
litigation  on  the  distress  warrant,  so  that  if  they  were  held  liable 
for  the  rent  they  could  apply  it  in  part  payment  of  the  judgment 
which  would  be  obtained.  It  was  contracted  that  in  no  event 
should  they  transfer  the  note,  and  to  secure  this  end  it  was  made 
non-transferable.  The  litigation  arising  on  the  distress  warrant 
is  still  pending;  but  said  payees,  tired  of  keeping  their  contract, 
came  to  defendant,  and,  by  fraud,  obtained  the  note  sued  on  in 
place  of  the  first,  and  immediately  transferred  it  to  the  plaintiff. 


278  Instrument  Indorsed  in  Blank 

Defendant  further  says  that  the  plaintiff  is  only  an  agent  of 
the  payees,  who  are  thus  seeking  to  avoid  their  contract  under 
the  willing  complicity  of  plaintiff  as  an  innocent  and  bona  fide 
holder. 

When  the  plaintiff  offered  the  note  sued  on  in  evidence, 
objection  was  taken  on  the  ground  that  it  showed  no  title  out  of 
Eppinger  &  Russell,  unless  a  power  from  them  to  "A.  Cyraix, 
attorney,"  be  shown;  and  further,  that  the  second  indorsement 
showed  the  note  to  be  the  property  of  the  Atlanta  Savings  Bank. 
The  objections  were  overruled  and  defendant  excepted. 

Mr.  Goodyear,  of  counsel  for  plaintiff,  testified  to  the  follow- 
ing facts:  In  taking  the  first  note  defendant  remarked  that  he 
desired  it  made  with  time  enough  to  reach  over  the  approaching 
May  term  of  the  court  when  the  distress  warrant  would  be  tried. 
Witness  supposed  it  to  be  a  negotiable  note,  and  under  this 
impression  delivered  it  to  Russell,  one  of  the  payees.  A  few 
weeks  after,  he  returned  it  to  witness  and  said  he  could  do  nothing 
with  it  as  it  was  not  negotiable,  though  given  as  negotiable  paper. 
Witness  told  him  that  he  had  no  doubt  it  was  an  oversight  of 
defendant's,  and  he  would  undertake  to  procure  a  negotiable 
instrument  in  its  place.  Defendant  wanted  additional  time,  so 
witness  drew  the  note  sued  on  at  three  months  and  defendant 
signed  it.  He  had  full  opportunity  to  read  it.  The  first  note  was 
destroyed.  The  plaintiff  had  no  knowledge  of  the  conversations 
or  transactions  referred  to. 

The  jury  found  for  the  plaintiff.  The  defendant  moved 
for  a  new  trial  on  the  following  grounds : 

ist.    Because  the  verdict  was  contrary  to  law  and  evidence. 

2d.  Because  the  court  refused  to  charge  as  follows :  "If  the 
jury  find,  from  an  inspection  of  the  note,  an  indorsement  of  the 
original  payees'  names,  and  also  the  following  indorsement :  'Pay 
to  the  order  of  C.  H.  Dexter,  Esq.,  cashier,  for  collection  on 
account  of  Atlanta  Savings  Bank  of  Georgia.  (Signed)  Lodo- 
vick  J.  Hill,  Cashier,'  and  found  no  other  indorsement  on  the  note, 
then  the  note  without  further  evidence,  would  be  presumed  to  be 
the  property  of  the  said  Atlanta  Savings  Bank  and  the  plaintiff 
could  not  recover  from  the  defendant." 

3d.  Because  the  court  erred  in  charging  that  when  a  plaintiff 
in  this  class  of  cases,  introduces  a  promissory  note  in  evidence, 
he  is  entitled  to  recover  unless  the  defendant  introduces  evidence 
to  rebut  the  prima  facie  case  thus  made  out. 

4th.  Because  the  court  overruled  the  objections  to  the  intro- 
duction of  the  note  sued  on,  as  stated  above. 


Habersham  v.  Lehman  279 

5th.  Because  the  court  charged  the  jury  that  the  defendant's 
plea  of  fraud  in  the  procurement  could  not  avail  him  unless  his 
evidence  showed  that  the  plaintiff  was  a  party  to,  or  was  cognizant 
of,  the  fact  of  the  fraud;  that  fraud  in  the  procurement,  as  con- 
templated by  law,  related  only  to  the  original  maker  and  payee, 
or  that  notice  of  the  fraud  was  brought  home  to  him. 

The  motion  was  overruled,  and  defendant  excepted. 

Mabry  &  Crovatt,  for  plaintiff  in  error. 
Goodyear  &  Harris,  for  defendant. 

Beckley,  Justice. 

1.  There  were  two  grounds  of  objection  to  the  introduction 
of  the  note  in  evidence,  one  of  them  being  that  the  second  indorse- 
ment showed  the  instrument  to  be  the  property  of  the  Atlanta 
Savings  Bank,  whose  cashier  had  indorsed  it  over  to  one  C.  H. 
Dexter  for  collection.  On  the  effect  of  an  indorsement  by  the 
payee  in  blank,  followed  by  an  indorsement  in  full  by  another  per- 
son, see  1  Daniel  on  Neg.  Inst.,  §  696.  Where  a  promissory  note 
is  payable  to  a  named  person  or  order,  or  to  the  order  of  a  named. 
person~and  is  indorsed  in  blank,  it  is  then,  until  the  blank  is  filled, 
payable  to  the  holder,  and  any  holder  may  receive  payment,  or 
sue  and  collect.  The  payee's  order  to  pay  to  any  holder  is  not 
revolced"  or  canceled  by  the  order  of  some  other  person  to  pay  to 
a  particular  individual. 

2.  The  other  ground  of  objection  was  that  the  indorsement 
of  the  payees  purported  to  be  executed  by  an  attorney,  and  no 
power  of  attorney  or  other  evidence  of  authority  to  indorse  was 
produced.  The  Code,  in  section  2855,  declares  that  "an  indorse- 
ment or  assignment  of  any  bill,  bond  or  note,  when  the  same  is 
sued  on  by  the  indorsee,  need  not  be  proved  unless  denied  on 
oath."  A  plaintiff  who  derives  his  title  through  an  indorsement  in 
blank,  is  an  indorsee,  for  he  has  the  right  to  fill  the  blank  and 
takes  the  place  of  indorsee  in  express  words,  so  long  as  he  holds 
the  instrument.  In  strictness,  the  blank  ought  to  be  filled  when, 
or  before,  the  instrument  is  tendered  in  evidence,  but  the  prac- 
tice is  to  treat  that  as  done  which  can  be  done,  and  so  a  blank, 
^indorsement  is  considered,  for  most  purposes  of  the  suit,  as  an 
express  indorsement  to  the  plaintiff,  if  the  latter  has  possession  of 
the  paper.  We  think,  too,  the  Code  applies,  and  that  J)roof_of_ 
the  indorsement  is  dispensed  with,  as  well  where  the  payees  seem 
to  have  indorsed  by  agent  or  attorney  as  where  they  purport  to 
have  indorsed  in  person.  And  if  an  agent  or  attorney  can  indorse 
for  the~payees  (than  which  nothing  is  more  certain),  to_take  the 


280  Changing  Blank  into  a  Special  Indorsement 

indorsement  for  granted  without  proof,  is  to  take  the  authority 
of  the  agent  or  attorney  for  granted  without  proof;  for  the 
indorsement  could  not,  when  executed  by~arl  agent  or  attorney, 
be  the  act  of  the  payees  unless  it  was  duly  authorized.  We  are 
further  of  opinion,  in  the  light  of  the  known  practice  under  the 
Code,  and  under  the  statute  prior  to  the  Code,  that  the  section 
which  we  have  quoted  dispenses  with  the  proof  of  the  indorse- 
ment, whether  the  action  be  against  the  indorser,  upon  the 
indorsement  itself,  or  against  the  maker,  upon  the  note.  Indeed, 
this  provision  is  more  applicable  in  the  latter  than  in  the  former 
case;  because,  in  the  former,  the  general  rule,  found  in  sections 
2851,  3454  and  3472,  as  to  pleas  of  non  est  factum,  would  be 
directly  applicable,  and  would  be  enough  to  entitle  the  plaintiff 
to  go  on  against  the  indorser  without  proof  of  the  indorsement, 
unless  it  was  denied  on  oath.  In  the  present  case,  the  plea,  so 
far  from  denying  the  indorsement,  seems  to  admit  it.  We  think 
it  does  admit  it,  and  then  goes  forward  and  makes  a  point  upon 
the  motive  and  purpose  of  it. 

3.  The  evidence  did  not  rebut  the  legal  presumption  that 
the  plaintiff  was  entitled  to  the  standing  of  a  bona  Me  holder  for 
value ;  nor  do  we  see  that  it  made  out  any  defense  to  the  action 
on  the  merits.  The  evidence  of  fraud  in  procuring  the  note  orig- 
inally, amounted  to  nothing.     The  plea  was  wholly  unsustained. 

Judgment  affirmed. 

CHANGING  A  BLANK  INTO  A  SPECIAL  INDORSEMENT.         §  37. 

X  Martin  v.  Cole  (1881),  104  U.  S.  30. 

Error  to  the  Supreme  Court  of  the  Territory  of  Colorado. 
The  facts  are  stated  in  the  opinion  of  the  court. 

Mr.  Henry  M.  Teller,  for  the  plaintiff  in  error. 
No  counsel  appeared  for  the  defendant  in  error. 

Mr.  Justice  Matthews  delivered  the  opinion  of  the  court. 

The  defendant  in  error  was  plaintiff  below,  and  brought  his 
action  of  assumpsit  against  the  plaintiff  in  error,  as  indorser  of  a 
promissory  note,  in  the  District  Court  of  the  First  Judicial  Dis- 
trict of  Colorado  Territory,  for  the  County  of  Arapahoe,  the  plain- 
tiff below  being  the  immediate  indorsee. 

A  copy  of  the  note  sued  on,  with  the  indorsements,  filed  with 
the  declaration,  is  as  follows: — 


Martin  v.  Cole  281 

"$1,414.15.  Georgetown,  C.  T.,  July  17,  1868. 

"On  or  before  eighteen  months  after  date,  I  promise  to  pay 
to  John  H.  Martin,  or  order,  the  sum  of  fourteen  hundred  and 
fourteen  15/100  dollars,  for  value  received,  at  George  I.  Clark  & 
Co.'s  bank  at  Georgetown,  with  interest  at  the  rate  of  three  per 
cent  per  month  from  date  until  paid. 

(Signed)         "John  Webb." 

[Indorsed  on  back.] 

"Pay  to  the  order  of  Luther  A.  Cole.    Value  received. 
(Signed)         "John  H.  Martin." 

The  declaration,  besides  the  common  money  counts,  contained 
five  special  counts. 

The  plaintiff  in  error,  in  addition  to  the  general  issue,  filed 
a  special  plea  to  the  first  and  second  counts  of  the  declaration,  the 
substance  of  which  is  as  follows : — 

"And  the  said  defendant  avers  that  he  made  the  said  indorse- 
ment when  it  was  so  made,  in  blank,  that  is  to  say,  by  writing  his 
name  across  the  back  of  said  promissory  note,  and  that  he  made 
•said  indorsement  with  the  express  agreement  by  and  between  him 
and  the  said  plaintiff,  the  said  Luther  A.  Cole,  that  the  said 
indorsement  should  never  be  filled  up  so  as  to  make  this  defendant 
liable  in  any  manner  upon  the  said  indorsement,  but  only  to  enable 
the  said  plaintiff  to  sue  the  said  note  in  his  own  name,  if  suit 
therein  should  become  necessary.  And  this  defendant  avers  that, 
relying  upon  the  assurance  of  the  said  plaintiff  that  his  indorse- 
ment should  not  be  filled  up  so  as  to  render  him  liable  as  indorsee 
[indorser]  thereon,  he  signed  his  name  upon  the  back  of  said 
note,  which  without  said  assurance  he  would  not  have  done." 

To  this  plea  there  was  filed  a  general  demurrer,  which  was 
sustained. 

Afterwards,  on  June  6,  1874,  the  cause  was  submitted,  by 
consent  of  parties,  without  the  intervention  of  a  jury,  when  the 
court  found  the  issues  in  favor  of  the  plaintiff,  and  rendered 
judgment  against  the  defendant  for  $2,478.17  damages  and  costs. 

A  bill  of  exceptions  was  taken,  which  sets  out  all  the  evidence 
given  and  offered  in  the  trial  of  the  case.  From  that  it  appears 
that  the  defendant  below,  Martin,  being  on  the  stand  as  a  witness 
in  his  own  behalf,  was  asked  to  state  under  what  circumstances 
the  note  in  suit  was  transferred  by  him  to  the  plaintiff,  Cole. 
Objection  being  interposed,  the  defendant  then  stated  to  the  court 
that  he  offered  to  prove  in  defence  a  parol  promise  contempora- 
neous with  the  indorsement  of  the  note ;  that  he  proposed  to  prove 


282  Changing  Blank  into  a  Special  Indorsement 

by  the  witness  that  the  parol  agreement  set  forth  and  stated  in 
the  defendant's  second  plea  was  made  by  the  parties.  The  court 
sustained  the  objection,  and  the  defendant  excepted. 

Thereupon  the  defendant  offered  to  prove  that  at  the  time 
the  note  was  transferred  by  Martin  to  Cole  it  was  expressly 
agreed  between  them  that  Martin  should  indorse  his  name  on 
the  note  in  blank  to  enable  Cole  to  collect  it  in  his  own  name, 
and  that  Cole  agreed  then,  in  consideration  of  what  he  had  given 
for  the  note,  that  he  (Martin)  was  never  to  be  called  upon  as 
indorser  or  guarantor  of  its  payment  in  the  event  he  failed  to  col- 
lect it  from  the  maker  of  the  note;  to  which  offer  an  objection, 
interposed  by  the  plaintiff,  was  sustained,  and  the  defendant 
excepted. 

The  defendant  had  previously  testified  that  his  name  on  the 
back  of  the  note  was  written  by  him,  but  that  the  words  "Pay 
to  the  order  of  Luther  A.  Cole,  value  ree'd,"  were  not  written  at 
the  time  of  the  indorsement  and  delivery  of  the  note,  nor  by  him 
at  any  time. 

The  plaintiff  below  read  in  evidence  the  depositions  of  Wil- 
liam L.  Campbell,  Levi  H.  Shepperd,  and  John  T.  Harris,  tending 
to  prove  the  insolvency  of  Webb,  the  maker  of  the  note,  at  and 
after  its  maturity.  Objections  were  made  to  their  depositions, 
and  overruled ;  to  which  an  exception  was  taken.  The  objections, 
however,  do  not  appear  to  be  of  sufficient  importance  to  require 
further  notice. 

The  plaintiff  also  read  in  evidence  the  transcript  of  the  record, 
judgment,  and  proceedings  in  the  action  of  Luther  A.  Cole  against 
John  Webb,  the  maker  of  the  note,  together  with  the  execution, 
levy,  and  return,  being  the  same  referred  to  in  the  first  count  of 
the  declaration.  From  that  it  appears  that  the  execution  was 
issued  on  May  9,  1870,  returnable  in  ninety  days  from  date,  and 
actually  returned  on  June  7,  1870,  showing  the  levy  and  sale 
referred  to  in  the  pleadings. 

There  was  other  testimony,  also,  tending  to  prove  the  insol- 
vency of  Webb,  the  maker  of  the  note,  at  and  after  its  maturity, 
and  at  the  time  of  the  bringing  of  this  action. 

An  appeal  was  taken  from  the  judgment  of  the  District  Court 
of  the  First  Judicial  District  of  the  County  of  Arapahoe  to  the 
Supreme  Court  of  Colorado  Territory,  in  which,  at  the  February 
Term,  1875,  errors  were  assigned,  and  the  judgment  was  affirmed 
in  that  court  on  March  28,  1876. 

To  reverse  that  judgment  is  the  object  of  the  present  writ  of 
error. 


Martin  v.  Cole  283 

The  agreement  set  out  and  relied  on  in  the  plea  was  that 
"the  said  indorsement  should  never  be  filled  up  so  as  to  make 
this  defendant  liable  in  any  manner  upon  the  said  indorsement, 
but  only  to  enable  the  said  plaintiff  to  sue  the  said  note  in  his 
own  name,  if  suit  thereon  should  become  necessary."  And  the 
defendant  averred  that  ''he,  relying  upon  the  assurance  of  the 
said  plaintiff  that  his  indorsement  would  not  be  filled  up  so  as  to 
render  him  liable  as  indorser  thereon,  signed  his  name  upon  the 
back  of  said  note,  which  without  said  assurance  he  would  not 
have  done."  As  the  indorsement  in  blank,  admitted  bv  the  defend- 
ant to  have  been  made  by  him,  without  being  filled  up  by  the 
plaintiff  at  all,  rendered  him  liable  for  the  payment  of  the  note 
as  an  indorser,  the  breach  by  the  plaintiff  of  the  alleged  agree- 
ment was  inconsequential,  and  could  not,  in  law,  result  in  any 
actionable  injury;  for  filling  upthe  blank  indorsement  in  the, 
manner  in  which  it  waTHone  neither  added  to  nor  subtracted  from! 
tTuTTiability  which  the  detenclant  assumed  hy_  merely  writjngjrns" 
rTarne~on  the  back  of  the  nofE 

The  defendant  belbw,  however,  further  offered  at  the  trial 
to  prove  that  at  the  time  the  note  was  transferred  by  Martin  to 
Cole  it  was  expressly  agreed  between  them  that  Martin  should 
indorse  his  name  on  the  note  in  blank,  to  enable  Cole  to  collect 
it  in  his  own  name,  and  that  Cole  agreed  then,  in  consideration 
of  what  he  had  given  for  the  note,  that  he  (Martin)  was  never 
to  be  called  upon  as  indorser  or  guarantor  of  its  payment  in 
the  event  he  failed  to  collect  it  from  the  maker  of  the  note.  No 
question  was  made  at  the  time,  nor  has  been  raised  since,  as  to 
the  admissibility  of  such  proof  under  a  plea  of  the  general  issue ; 
and  waiving  any  objection  on  that  account,  the  rejection  by  the 
court  below  of  this  offer  fairly  raises  the  issue  intended  to  have 
been  made  by  the  special  plea,  whether  it  is  competent,  in  an  ^ 
action  against  an  indorser  by  his  immediate  indorsee,  upon  an 
indorsement  made  in  blank  of  a  negotiable  promissory  note,  to 
prove,  as  a  defence,  that  as  part  of  the  transaction  it  was  agreed 
between  the  parties,  but  not  in  writing,  that  it  should  merely  have 
the  legal  effect  of  an  indorsement  expressed  to  be  without 
recourse. 

It  has  never  been  contended  that  such  a  defence,  based  on 
dealings  between  prior  parties,  could  be  maintained  to  defeat  the 
title  of  a  bona  fide  holder  for  value  of  negotiable  paper,  acquired 
before  maturity,  in  the  usual  course  of  business,  and  without 
notice ;  for  the  protection  of  such  a  title  is  of  the  essence  of  the 
policy  of  the  law  merchant,  and  inheres  in  the  very  definition  of 


284  Changing  Blank  into  a  Special  Indorsement 

negotiability.  Hence,  in  that  case,  a  collateral  but  contempora- 
neous written  agreement  between  two  prior  parties  to  a  bill  or 
note  would  not  affect  its  validity  in  the  hands  of  the  holder,  more 
than  if  the  agreement  were  unwritten.  Whereas,  between  the 
immediate  parties,  if  the  agreement  relied  on  were  in  writing,  its 
terms  would  fix  and  determine  their  rights  and  obligations  as 
was  decided  by  this  court  in  Davis  v.  Brown,  94  U.  S.  427"  The 
question  is  between  them  alone;  and  is,  whether  the  same  effect 
will  be  given  to  such  an  agreement,  not  reduced  to  writing. 

The  ground  of  decision  must  be  found  in  some  other  prin- 
ciple or  policy  of  the  law  than  that  which  protects  the  title  of  a 
remote  innocent  holder  of  negotiable  paper. 

Accordingly,  Mr.  Justice  Washington,  in  Susquehanna 
Bridge  &  Bank  Co.  v.  Evans,  4  Wash.  480,  after  admitting  proof 
of  such  an  agreement,  in  an  action  by  the  holder  of  a  promissory 
note  against  his  immediate  indorser,  said,  in  his  charge  to  the 
jury: 

"The  reasons  which  forbid  the  admission  of  parol  evidence 
to  alter  or  explain  written  agreements  and  other  instruments  do 
not  apply  to  those  contracts  implied  by  operation  of  law,  such  as 
that  which  the  law  implies  in  respect  to  the  indorser  of  a  note 
of  hand.  The  evidence  of  the  agreement  made  between  the  plain- 
tiffs and  defendants,  whereby  the  latter  were  to  be  discharged  on 
the  happening  of  a  particular  event,  was,  therefore,  properly 
admitted." 

It  is  upon  this  distinction  between  contracts  express  and 
implied  that  those  judicial  tribunals  have  proceeded,  in  which 
such  proof  is  held  to  be  admissible.  It  is  declared,  for  example, 
by  the  Supreme  Court  of  Pennsylvania,  in  Ross  v.  Epsy,  66  Pa. 
St.  481,  483,  that  "the  contract  of  indorsement  is  one  implied 
by  the  law  from  the  blank  indorsement,  and  can  be  qualified  by 
express  proof  of  a  different  agreement  between  the  parties,  and  is 
not  subject  to  the  rule  which  excludes  the  proof  to  alter  or  vary 
the  terms  of  an  express  agreement." 

So  in  an  early  case  in  New  Jersey,  Johnson  v.  Martinus, 
9  N.  J.  L.  144,  it  was  held  by  the  Supreme  Court  of  that  state 
that  parol  evidence  was  competent  to  overcome  the  implied  con- 
tract which  results  from  a  blank  indorsement,  on  the  ground  that 
such  indorsement  is  an  inchoate  or  imperfect  contract  and  not  a 
written  instrument,  nor  entitled  to  its  effect,  protection,  or 
immunity. 

This  case,  however,  was  expressly  overruled  by  the  same 
court  in  Chaddock  v.  Vanness,  35  id.  517,  in  which  it  is  plainly 


Martin  v.  Cole  285 

indicated  that  the  distinction  attempted  to  be  made,  in  some  of 
the  cases,  between  indorsements  in  full  and  those  which  are  in 
blank,  is  untenable. 

The  contract  created  by  the  indorsement  and  delivery  of  a 
negotiable  note,  even  between  the  immediate  parties  to  it,  is  a 
commercial  contract,  and  is  not  in  any  proper  sense  a  contract 
implied  by  the  law,  much  less  an  inchoate  or  imperfect  contract. 
It  is  an  express  contract,  and  is  in  writing,  some  of  the  terms  of 
which,  according  to  the  custom  of  merchants  and  for  the  conveni- 
ence of  commerce,  are  usually  omitted,  but  not  the  less  on  that 
account  perfectly  understood.  All  its  terms  are  certain,  fixed, 
and  definite,  and,  when  necessary,  supplied  by  that  common  knowl- 
edge, based  on  universal  custom,  which  has  made  it  both  safe  and 
convenient  to  rest  the  rights  and  obligations  of  parties  to  such 
instruments  upon  an  abbreviation.  So  that_the_rnerg_name  of  the 
jndorser,  signed  upon  the  back  of  a  negotiable  instrument,  con- 
veys and  expresses  his  meaning  and  intention  as  fully  and  com- 
pletely as  if  he  had  written  out  the  customary  obligation  of  his 
contract  in  full. 

It  is  spoken  of  by  Wharton,  Law  of  Evidence,  &c,  Sec. 
1059,  as  a  contract  at  short-hand.  The  same  view  is  taken  in 
Daniels  on  Negotiable  Instruments,  Sec.  718,  where  the  author 
states,  as  a  resulting  conclusion  that  embodies  the  true  principle 
applicable  to  the  subject,  that,  "in  an  action  by  immediate  indorsee 
against  an  indorser,  no  evidence  is  admissible  that  would  not  be 
admissible  in  a  suit  by  a  party  in  privity  with  the  drawer,  against 
him."  If  the  commercial  contract  of  indorsement  is  treated  as  a 
contract  in  writing,  this  conclusion  is  undoubtedly  correct.  If  it 
is  not,  we  have  the  anomaly  of  applying  one  rule  between  maker 
and  payee,  and  a  different  one  between  payee  becoming  indorser 
and  his  immediate  indorsee,  without  any  difference  to  justify  it, 
in  the  relation  of  the  parties  to  each  other  in  the  two  cases. 

The  rule  is  tersely  stated  in  Benjamin's  Chalmer's  Digest  of 
the  Law  of  Bills  of  Exchange,  &c,  Art.  56,  p.  63. 

"The  contracts  on  a  bill,  as  interpreted  by  thelaw  merchant^ 
are  contracts  in  writing.  Kxtrinsic~evrdence  is  not  admissible 
tcTcontradict  or  vary  their  "effect."  Xitifig  Abrey  v.  Crux,  5  Law 
Rep.  <J.  f.  37. 

The  rule  as  declared  by  Mr.  Justice  Washington  in  the  case 
cited  was  expressly  rejected  by  this  court  in  Bank  of  the  United 
States  v.  Dunn,  6  Pet.  51,  one  distinct  ground  of  its  opinion  being 
that  parol  evidence  is  not  admissible  to  vary  a  written  agreement ; 
citing  the  language  of  the  court  in  Renncr  v.  Bank  of  Columbia, 


286  Changing  Blank  into  a  Special  Indorsement 

9  Wheat.  581,  587:  "For  there  is  no  rule  of  law  better  settled  or 
more  salutary  in  its  application  to  contracts,  than  that  which  pre- 
cludes the  admission  of  parol  evidence  to  contradict  or  substan- 
tially vary  the  legal  import  of  a  written  agreement." 

The  authority  of  this  case  on  this  point  has  never  been  ques- 
tioned in  this  court,  the  explanation  and  qualification  in  Davis 
v.  Brown,  supra,  having  reference  only  to  the  rule  as  to  the  com- 
petency of  an  indorser  as  a  witness  to  impeach  the  validity  of  a 
negotiable  instrument  to  which  he  is  a  party.  In  the  case  last 
referred  to,  the  agreement  relied  on  to  qualify  the  instrument  was 
admitted  because  it  was  in  writing  and  part  of  the  transaction. 

The  case  of  Bank  of  the  United  States  v.  Dunn,  supra,  is  cited 
as  an  authority  upon  the  point  in  Phillips  v.  Preston,  5  How.  278, 
291,  "because,  in  an  action  on  a  note,  parol  testimony  is  not  com- 
petent to  vary  its  written  terms,  and  probably  not  to  vary  a  blank 
indorsement  by  the  payee  from  what  the  law  imports." 

It  is  also  referred  to  in  terms  and  followed  in  Brown  v. 
Wiley,  20  id.  442.  In  delivering  the  opinion  of  the  court  in  that 
case  Mr.  Justice  Grier  used  this  language: 

"When  the  operation  of  a  contract  is  clearly  settled  by  gen- 
eral principles  of  law,  it  is  taken  to  be  the  true  sense  of  the  con- 
tracting parties.  This  is  not  only  a  positive  rule  of  the  common  law, 
but  it  is  a  general  principle  in  the  construction  of  contracts.  Some 
precedents  to  the  contrary  may  be  found  in  some  of  our  states, 
originating  in  hard  cases ;  but  they  are  generally  overruled  by  the 
same  tribunals  from  which  they  emanated,  on  experience  of  the 
evil  consequences  flowing  from  a  relaxation  of  the  rule.  There 
is  no  ambiguity  arising  in  this  case  which  needs  explanation.  By 
the  face  of  the  bill  the  owner  of  it  had  a  right  to  demand  accept- 
ance immediately,  and  to  protest  it  for  non-acceptance.  The 
proof  of  a  parol  contract,  that  it  should  not  be  presentable  till  a 
distant,  uncertain,  or  undefined  period,  tended  to  alter  and  vary,  in 
a  very  material  degree,  its  operation  and  effect.  (See  Thompson 
v.  Ketchum,  8  Johns.  192)." 

The  action  in  this  case,  it  is  true,  was  between  the  payee  and 
drawer,  upon  a  bill  of  exchange;  but  the  obligation  on  which  it 
was  founded,  that  the  drawer  would  pay  in  the  event  of  non- 
acceptance  by  the  drawee,  notice  of  dishonor  and  protest,  is  one 
not  actually  expressed  in  terms  in  the  bill  itself,  but  imported  by 
construction  of  law,  as  constituting  the  operation  and  effect  of 
the  contract. 

In  Specht  v.  Howard,  16  Wall.  564,  Mr.  Justice  Swayne, 
delivering  the  opinion  of  the  court,  quotes  from  Parsons  on  Notes 


Corbett  v.  Fetzer  287 

and  Bills,  501,  that  "It  is  a  firmly  settled  principle  that  parol") 
evidence  of  an  oral  agreement  alleged  to  have  been  made  at  the  C 
time  of  the  drawing,  making,  or  indorsing  of  a  bill  or  note,  can-  \ 
not  be  permitted  to  vary,  qualify,  or  contradict,  to  add  to  orj 
subtract  from,  the  absolute  terms  of  the  written  contract." 

The  same  quotation  forms  part  of  the  opinion  in  Forsythe  v. 
Kimball,  91  U.  S.  291,  with  the  addition  that,  in  the  absence  of 
fraud,  accident,  or  mistake,  the  rule  is  the  same  in  equity  as  at 
law. 

The  same  principle,  upon  the  authority  of  these  cases,  was 
affirmed  by  this  court  in  Brown  v.  Spoiford,  95  id.  474,  and  is 
assumed  to  be  the  law  in  Cox  v.  National  Bank,  100  id.  704,  and 
Brent's  Ex'rs  v.  Bank  of  the  Metropolis,  1  Pet.  89. 

In  view  of  this  line  of  decisions,  the  question,  as  it  arises  in 
this  case,  cannot  now  be  considered  an  open  one  in  this  court. 

It  coincides  with  the  rule  adopted  and  applied  in  most  of  the 
states,  but  the  cases  are  too  numerous  for  citation.  They  will  be 
found  collected,  however,  in  Bigelow,  Bills  and  Notes,  168;  Byles, 
Bills  (6th  Am.  ed.),  Sharswood's  note,  157;  1  Daniel,  Negotitable 
Instruments,  Sees.  80,  717  et  seq.;  2  Wharton,  Evidence,  Sec. 
1058  et  seq. ;  Benjamin's  Chalmer's  Digest  of  the  Law  of  Bills 
of  Exchange,  Art.  56,  p.  63. 

Of  course  there  are  many  distinctions  which,  upon  the  cir- 
cumstances of  cases,  determine  the  applicability  of  the  rule,  and 
classes  of  cases  which  form  apparent  exceptions  to  it.  It  is  not 
necessary  to  refer  to  them  here,  further  than  to  say  that  the  limit- 
ations of  the  rule  ar  perfectly  consistent  with  it,  and  its  application 
in  this,  as  in  other  proper  cases,  will  not  be  considered  as  encroach- 
ing upon  them. 

We  find  no  error  in  the  record. 

Judgment  affirmed. 

THE  QUALIFIED  INDORSEMENT.  §  40. 

Corbett  v.  Fetzer  (1896),  47  Neb.  269. 

Error  from  the  District  Court  of  Douglas  county.  Tried 
below  before  Irvine,  J. 

B.  G.  Burbank,  for  plaintiffs  in  error. 
/.  /.  O'Connor,  contra. 

Post,  C.  J.  This  was  a  proceeding  by  Fetzer,  the  defendant 
in  error,  in  the  District  Court  for  Douglas  county  to  foreclose 
fifty-seven  different  mortgages  executed  by  William  B.  Cowles 


288  The  Qualified  Indorsement 

and  wife  to  Editha  H.  Corbett,  upon  certain  property  in  North 
Side  Addition  to  the  city  of  Omaha,  to  secure  payment  of  as  many 
notes  of  even  date  therewith,  payable  by  said  Cowles  to  the  order 
of  the  mortgagee  named.  It  is  alleged  in  the  petition  that  the 
said  Editha  H.  Corbett,  Charles  Corbett,  Day  &  Cowles,  and  R. 
W.  Day,  who  were  made  defendants,  indorsed  said  notes  and  thus 
became  liable  thereon.  The  prayer  is  for  a  foreclosure  of  the 
mortgages  and  for  personal  judgment  against  Day  &  Cowles,  R. 
W.  Day,  and  the  Corbetts  for  any  balance  remaining  due  on  their 
said  indebtedness,  after  applying  thereon  the  proceeds  of  the 
mortgaged  property.  Of  the  defendants  named  the  Corbetts 
(  husband  and  wife)  only  answered,  admitting  the  allegations  of 
the  petition,  except  as  to  their  personal  liability,  and  charging 
that  the  notes  above  described  were  indorsed  without  recourse 
upon  them.  The  reply  is  a  general  denial.  The  district  court, 
upon  the  issues  joined,  found  generally  for  the  plaintiff,  accom- 
panied by  a  special  finding  that  the  Corbetts  were  liable  as 
indorsers  of  said  notes,  and  a  decree  was  entered  in  accordance 
therewith,  which  has  been  removed  into  this  court  for  review. 

Practically  the  only  question  presented  by  the  motion  for  a 
new  trial  and  the  petition  in  error  relates  to  the  liability  of  the 
Corbetts  as  indorsers  of  the  notes  above  described.  On  the  back 
and  near  the  top  of  each  of  said  notes  appears  the  following: 
"E.  H.  Corbett.  Chas.  Corbett.  Without  recourse  on  us.  Day 
&  Cowles.  R.  W.  Day."  Said  notes,  according  to  the  claim  of 
the  Corbetts,  had  been  pledged  to  Samuel  R.  Johnson,  bearing 
their  indorsement  in  blank,  as  collateral  security,  and  shortly 
before  the  consummation  of  the  sale  thereof  to  Fetzer  the  words 
immediately  following  their  names,  as  shown  above,  were  added 
in  order  to  limit  their  liability  thereon.  The  transaction  which 
resulted  in  the  purchase  of  the  notes  by  Fetzer  was  conducted 
on  the  part  of  the  Corbetts  by  R.  W.  Day,  one  of  the  defendants 
named,  who  testified  that  the  indorsements  "Day  &  Cowles"  and 
"R.  W.  Day"  were  made  during  such  negotiations  at  the  request 
of  the  plaintiff,  and  that  previous  to  such  indorsement  the  words 
"without  recourse  on  us"  were  written  thereon  in  his  presence 
by  C.  W.  Johnson,  a  clerk  in  the  office  of  Mr.  Corbett,  and  in 
which  he  is  corroborated  by  both  Johnson  and  Corbett.  There 
are  observable  from  the  records  facts  which  tend  strongly  to  sus- 
tain the  contention  that  the  words  of  limitation  were  intended  to 
apply  to  the  indorsement  of  the  Corbetts  rather  than  to  that  of 
Day  &  Cowles  or  R.  W.  Day.  They  were  in  the  first  place  written 
with  different  ink,  apparently  at  a  different  time,  and  certainly  in. 


Corbett  v.  Fetzer  289 

a  different  hand  from  that  employed  in  the  subsequent  indorse- 
ments. They  were  also  written  by  Corbett's  clerk,  by  his  order 
and  direction,  pending  the  negotiations  for  the  sale  of  the  notes 
and  at  a  time  when  the  question  of  their  liability  upon  paper  of 
like  character  would  naturally  be  uppermost  in  the  minds  of 
solvent  indorsers,  as  the  Corbetts  are  shown  to  have  been.  John- 
son was  asked  on  cross-examination  why  the  words  "without 
recourse"  were  not  written  over  the  names  of  the  indorsers,  to 
which  he  answered,  in  substance,  that  Mrs.  Corbett's  name  was 
written  so  near  the  upper  margin  of  the  note  as  to  leave  no  room 
therefor, — an  explanation  which  is  shown  by  the  record  to  be 
entirely  consistent  with  the  facts.  Again,  the  claim  that  the  sub- 
sequent parties,  instead  of  the  Corbetts,  indorsed  without  quali- 
fication finds  support  in  the  fact  that  both  R.  W.  Day  and  the 
firm  of  Day  &  Cowles  were  beneficially  interested  in  the  sale  of 
the  notes,  and  the  further  fact  that  their  absolute  liability  thereon 
is  established  by  the  personal  judgment  entered  against  them  in 
this  case  by  default,  as  also  by  the  admission  under  oath  of  Day, 
who  testified  in  behalf  of  the  defendants.  On  the  part  of  the 
plaintiff  below,  Fetzer,  it  is  shown  that  when  the  notes  were  first 
exhibited  to  him  by  Day,  four  or  five  days  previous  to  the  close 
of  the  transaction,  they  bore  no  indorsements  aside  from  the 
names  of  the  Corbetts,  and  that  when  next  seen  by  him  they  were 
indorsed  as  now,  except  the  name  of  Mr.  Day,  which  was  added 
in  his,  Fetzer's,  presence  at  the  time  they  were  delivered  to  him. 
He  testified  also  that  he  purchased  the  notes  described,  relying 
upon  the  indorsements  of  the  Corbetts,  paying  therefor  seventy- 
eight  per  cent  of  their  face  value,  and  that  at  the  same  time  he 
purchased  other  notes  executed  by  Cowles  and  indorsed  by  the 
Corbetts  without  recourse,  at  fifty-four  per  cent  of  the  amount 
due  thereon.  He  is  also  corroborated  to  some  extent  by  his 
brother,  William  Fetzer,  and  Mr.  Martin,  who  were  present 
during  the  several  interviews  with  Day.  A  final  analysis  of  the 
evidence  shows  the  following  facts,  as  to  which  there  is  no  sub- 
stantial controversy:  (i.)  When  the  notes  were  first  offered  for 
sale  to  Fetzer  they  bore  the  blank  indorsement  of  the  Corbetts. 
(2.)  Afterward,  pending  negotiations  for  the  sale  thereof,  Charles 
Corbett,  for  the  purpose  of  limiting  the  liability  of  himself  and 
wife  as  indorsers  of  said  notes,  caused  to  be  written  thereon  imme- 
diately below  their  names  the  words  "without  recourse  on  us." 
(3.)  The  names  of  the  said  Editha  H.  Corbett  and  Chas.  Corbett 
were  written  so  near  the  margin  of  said  notes  and  each  of  them 
as  to  leave  no  room  for  the  words  quoted  above  their  names. 


290  The  Qualified  Indorsement 

(4.)  R.  W.  Day,  one  of  the  subsequent  indorsers,  has  expressly 
admitted  his  liability  on  said  notes,  and  the  absolute  liability  of 
the  firm  of  Day  &  Cowles  thereon  is  established  by  the  decree  in 
this  case  entered  by  default.  (5.)  That  said  notes,  when  finally 
purchased  by  Fetzer,  bore  all  the  indorsements  now  appearing 
thereon,  except  the  name  of  R.  W.  Day,  and  were  at  said  time 
indorsed  by  said  Day  at  his,  Fetzer's,  request.  (6.)  Fetzer  pur- 
chased said  notes,  paying  therefor  seventy-eight  per  cent  of  their 
face  value,  relying  upon  the  indorsement  of  the  Corbetts,  who 
were  then  solvent. 

The  remaining  questions  merely  involve  the  application  of 
the  law  to  the  facts  above  stated.  A  case  in  point  is  President  of 
Fitchburg  Bank  v.  Greemvood,  84  Mass.  434.  Upon  the  back  of 
the  note  produced  at  the  trial  of  that  case  there  appeared  in  three 
successive  lines  the  following  indorsements :  "Greenwood  & 
Nichols — without  recourse — Asa  Perley,  2d."  Parol  evidence 
was  offered  by  Greenwood  &  Nichols  tending  to  prove  that  the 
words  "without  recourse"  were  written  by  them  for  the  purpose 
of  limiting  their  liability  as  indorsers  and  rejected  in  the  absence 
of  an  offer  to  prove  notice  by  the  plaintiff,  a  remote  indorsee  and 
alleged  bona  fide  holder.  In  reversing  the  judgment  of  the  lower 
court  Bigelow,  C.  J.,  said :  "There  is  no  rule  of  law  which 
requires  a  party  to  limit  or  qualify  his  indorsement  by  any  writing 
preceding  his  signature.  Such  qualification  may  and  often  does 
follow  the  name  of  the  party.  Text-writers  of  approved  authority 
recognize  this  mode  of  limiting  the  liability  of  an  indorser  as 
regular  and  appropriate."  The  doctrine  of  that  case  is  sustained 
by  the  following  authorities  therein  cited :  Chitty,  Bills  ( 10th 
Am.  ed.),  234,  235;  Story,  Promissory  Notes,  Sec.  138  and  note; 
and  in  2  Randolph,  Commercial  Paper,  Sec.  720,  we  observe  it 
is  approved  in  the  following  emphatic  language :  "The  words 
'without  recourse,'  following  the  name  of  an  indorser,  A,  and 
preceding  the  name  of  indorser  B,  may  be  shown  by  A  to  apply 
to  his  indorsement,  even  against  a  bona  fide  holder  who  supposed 
it  to  apply  to  B's."  It  may  be,  as  intimated,  that  there  existed  a 
purpose,  shared  by  Day  and  Corbett,  to  deceive  the  plaintiff  by 
inducing  him  to  purchase  the  notes  in  the  belief  that  the  Corbetts 
were  liable  thereon.  Such  a  contention  has,  however,  no  founda- 
tion either  in  the  pleadings  or  the  proofs,  which  show  that  he, 
Fetzer,  throughout  the  entire  transaction,  relied  upon  his  own 
judgment  respecting  the  value  of  the  paper  in  question;  nor  is 
there  any  force  in  the  objection  that  the  evidence  explanatory  of 
the  indorsement  of  the  notes  by  the  Corbetts  tends  to  change  or 


Robertson  v.  Kensington  291 

vary  their  written  obligation.  As  bearing  upon  that  question,  we 
quote  further  from  the  opinion  above  cited :  "It  [the  evidence 
offered]  had  no  tendency  to  vary  or  control  the  written  contract, 
or  to  change  the  legal  effect  of  the  indorsement.  It  only  proved 
what  the  contract  really  was,  at  the  time  it  was  entered  into  by 
the  defendants.  *  *  *  The  attempt  in  this  case  is  not  merely 
to  hold  the  defendants  on  a  contract  according  to  its  meaning  and 
legal  effect,  but  to  fasten  on  them  a  contract  into  which  they 
never  entered.  If  the  plaintiffs  mistook  the  application  of  the 
words  which  were  written  for  the  purpose  of  qualifying  the 
indorsement  of  the  defendants  on  the  note,  this  fact  furnishers 
no  ground  for  enlarging  or  changing  their  liability  on  the  con- 
tract into  which  they  in  fact  entered."  It  will  be  remembered,  too, 
that  this  cause  presents  no  question  of  fraud  or  estoppel,  nor  js 
j:he  action  one  between  the  indorser  and  a  bona  tide  holder  of 
commercial  paper,  but  between  the  parties  to  the  contract  _oj_ 
indorsement,  and,  therefore,  within  the  rule  recognized  in  Holmes 
v.  First  Nat.  Bank  of  Lincoln,  38  Neb.  326.  It  was  held  in  the 
case  last  cited  that,  as  against  a  subsequent  bona  fide  holder,  the 
liability  created  by  the  indorsement  in  blank  of  a  bill  or  note  can- 
not be  varied  by  parol  evidence ;  but  that,  as  between  the  original 
parties  thereto,  the  precise  terms  of  such  contract  is  always  a 
subject  of  inquiry,  and  that  parol  evidence  is  admissible  for  that 
purpose.  The  conclusion  we  reach  is  that  the  provision  of  the 
decree  of  the  district  court  for  a  deficiency  judgment  against  Cor- 
bett  and  wife  is  unsupported  by  the  evidence,  for  which  it  should 
be  reversed  and  the  cause  dismissed  as  to  the  plaintiffs  in  error. 

Reversed. 
Irvine,  C,  not  sitting. 0         ^^ 

THE  CONDITIONAL  INDORSEMENT.  §  41. 

Robertson  v.  Kensington  (1811),  4  Taunt.  50. 

This  was  an  action  of  assumpsit,  and  the  first  count  in  the 
declaration  was  on  a  bill  of  exchange,  of  which  the  following  is 
a  copy,  viz. : 

"Edinburgh,  18th  Nov.  1808.  £180.  sterling.  At  45  days 
after  date,  pay  this  first  of  exchange,  to  the  order  of  Mr.  Robert 
Robertson,  £180.  sterling,  value  received,  which  place  to  account, 
as  advised,  W.  Forbes.  J.  Hunter  and  Co."  "To  Messrs.  Ken- 
sington, Styan,  and  Adams,  bankers,  London."    "Accepted,  Ken- 


292  The  Conditional  Indorsement 

sington  and  Co.  Entered,  P.  J.  Raebum.  Indorsed,  Edinburgh, 
19  Nov.  1808.  Pay  the  within  sum  to  Messrs.  Clerk  and  Ross, 
or  order,  upon  my  name  appearing  in  the  Gazette,  as  ensign  .in 
any  regiment  of  the  line,  between  the  1st  and  64th,  if  within  two 
months  from  this  date.  R.  Robertson.  Clerk  and  Ross.  J.  Tin- 
dale.  Thomas  Eyre  and  Sons.  Thomas  Nelson.  Dudding  and 
Nelson.    Bank  of  England." 

The  Plaintiff  declared  as  payee,  against  the  Defendants  as 
acceptors.  The  declaration  also  contained  counts  for  money  had 
and  received  by  the  Defendants  to  the  use  of  the  Plaintiff,  for 
money  paid  by  the  Plaintiff  to  the  use  of  the  Defendants,  on  an 
account  stated,  and  for  interest. 

The  plea  was,  the  general  issue.  At  the  trial  of  this  cause 
before  Mansfield  C.  J.,  and  a  special  jury,  at  the  sittings  after 
Hilary  term  181 1,  at  Guildhall,  a  verdict  was  entered  by  consent 
for  the  Plaintiff  for  the  sum  of  180/.,  subject  to  the  opinion  of  the 
Court  on  the  following  case.  The  bill,  which  was  for  180/.,  was 
drawn  at  Edinburgh  on  the  18th  Noveynber  1808,  by  Sir  Wm. 
Forbes,  J.  Hunter  and  Co.,  upon  the  Defendants,  who  are  bankers 
in  London,  payable  to  the  order  of  the  Plaintiff,  at  45  days  date, 
for  value  received.  The  indorsements  by  the  Plaintiff,  and  by 
Clerk  and  Ross,  as  above  set  forth,  were  made  before  the  bill  was 
presented  to  the  Defendants  for  acceptance.  The  bill  was  deliv- 
ered to  Clerk  and  Ross,  army  agents  in  Edinburgh,  being  persons 
then  employed  by  the  Plaintiff  to  procure  for  him  by  purchase 
the  commission  of  ensign  above  referred  to.  The  bill,  with  those 
indorsements  upon  it,  was  afterwards  presented  to  the  Defend- 
ants for  acceptance,  and  accepted  by  them  in  the  usual  course  of 
their  business  as  bankers.  It  was  afterwards  indorsed  and  nego- 
tiated by  the  other  persons  whose  names  appear  as  indorsers,  and 
finally  with  the  Bank  of  England,  who  discounted  it.  At  the 
expiration  of  the  45  days  specified  in  the  bill  as  originally  drawn, 
and  the  days  of  grace,  the  Defendants  paid  the  contents  to  the 
Bank  of  England,  who  presented  it  to  them  for  payment.  The 
Plaintiff,  at  the  time  of  drawing  the  bill,  paid  the  full  value  of 
the  same  to  Sir  Wm.  Forbes,  J.  Hunter  and  Co.,  the  drawers,  but 
did  not  ask,  or  obtain,  their  consent,  or  that  of  the  Defendants, 
the  acceptors,  to  make  any  alteration  in  the  tenor  of  the  bill  by 
indorsement,  either  as  to  the  condition  of  the  payment,  or  the 
extension  of  time.  The  Plaintiff's  name  had  never  appeared  in 
the  Gazette  as  ensign  m  any  regiment  of  the  line.  The  question 
for  the  opinion  of  the  Court  was,  whether  the  Plaintiff  was 
entitled  to  recover :  if  he  was,  the  verdict  was  to  stand ;  if  he 


Edie  &  Laird  v.  East  India  Co.  293 

was  not  entitled  to  recover,  a  verdict  was  to  be  entered  for  the 
Defendants. 

This  case  was  argued  by  Lens  Serjt.  for  the  Plaintiff,  who 
contended,  that  it  was  competent  for  the  Plaintiff  by  this  special 
indorsement  to  make  only  a  conditional  transfer  of  the  absolute 
interest  in  the  bill-,  which  he  had  purchased  for  a  full  considera- 
tion, and  had  vested  in  him  by  the  delivery  of  the  drawer.  The 
Defendants,  by  subsequently  accepting  the  bill,  had  become  parties 
to  that  conditional  transfer,  and  as  the  condition  had  never  been 
performed,  the  transfer  was  defeated,  and  they  became  liable, 
after  the  expiration  of  the  two  months,  to  pay  the  Plaintiff,  to 
whom  the  property  then  reverted,  the  contents  of  the  bill,  of 
which  none  of  the  indorsers  could  enforce  payment  against  the 
Defendants  at  the  45  days  end,  because  they  had  all  received  the 
bill  subject  to  the  condition,  and  were  bound  thereby.  He  cited 
Anchor  v.  Bank  of  England,  Doug.  638. 

Shepherd  Serjt.  for  the  Defendant,  contended  that  it  was 
immaterial  whether  the  acceptance  was  before  or  after  the  con- 
ditional indorsement.  The  acceptance  admitted  the  hand-writing 
of  the  drawer,  but  it  did  not  mix  itself  with  the  conduct  of  the 
indorsers :  it  admitted  nothing  which  was  on  the  back  of  the  bill. 
The  whole  practice  of  the  courts  was  accordingly ;  for  in  an  action 
against  the  acceptor,  it  became  unnecessary  to  prove  the  hand- 
writing of  the  drawer,  but  it  was  necessary  to  prove  the  hand- 
writing of  the  indorser. 

The  Court  gave  judgment  for  the  Plaintiff. 


THE  RESTRICTIVE  INDORSEMENT.  §  38. 

Edie  &  Laird  v.  East  India  Company  (1761),  1  Wm.  Blackstone, 

295- 

Action  on  two  Bills  of  Exchange  of  2000/.  each,  drawn  by  R. 
Give  on  the  East-India  Company,  at  three  hundred  and  sixty-five 
Days  after  Date,  payable  to  R.  Campbell  or  Order.  Campbell 
indorsed  one  to  Ogleby,  or  Order,  the  other  to  Ogleby,  without 
adding  the  Words  or  Order.  But  at  the  Trial,  the  Words  or 
Order  appeared  upon  the  Endorsement  in  another  Hand- Writing. 
The  East-India  Company  accepted  both  Bills.  Ogleby  then 
endorsed  them  to  the  Plaintiffs,  and  soon  after  became  Insolvent. 
The  Company  then  refused  Payment.  The  Jury  found  a  Verdict 
for  the  Plaintiffs  on  the  first  Bill,  but  for  the  Defendants  on  the 


294  The  Restrictive  Indorsement 

second ;  apprehending,  that  by  the  Usage  of  Merchants  it  was  not 
assignable,  without  the  Words  or  Order  in  Campbell  the  Payee's 
Endorsement. 

Lord  Mansfield  Chief  Justice.  There  can  be  no  Dispute, 
where  the  Indorsement  is  in  Blank.  There,  you  may  write  over 
it,  whatever  you  please.  And  it  has  been  permitted  to  be  done 
even  in  Court.  But  for  this  there  is  no  Occasion.  Every  thing 
shall  be  intended  upon  such  a  blank  Indorsement.  The  Point 
relied  on  at  the  Trial  for  Defendants  was,  that  where  a  special 
Indorsement  was  made  to  A.  B.  and  the  Indorser  omitted  the 
Words,  or  Order,  this  was  equivalent  to  the  most  restrictive 
Indorsement.  Many  Witnesses  were  examined  by  Defendants  to 
prove  this  Usage ;  but  it  did  not  appear  that  in  any  one  Fact,  the 
Indorsee  of  such  special  Indorsement,  ever  lost  the  Money,  by 
such  Omission.    The  Evidence  was  only  Matter  of  Opinion. 

I  told  the  Jury  that  upon  the  general  Law  (laying  Usage  out 
of  the  Case)  the  Indorsement  carried  the  Property  to  Ogleby; 
and  that  the-  Negotiability  was  a  Consequence  of  the  Transfer. 

But  if  they  found  an  established  Usage  among  Merchants, 
that  where  the  Words  or  Order  were  omitted,  the  Bill  was  only 
negotiable  on  the  Credit  of  the  Indorsee,  they  should  find  for  the 
Defendants.  If  otherwise,  or  they  were  doubtful,  then  either  for 
the  Plaintiffs,  or  make  a  Case  of  it.  They  found  for  the  Defend- 
ant on  the  Bill  in  question ;  for  the  Plaintiff  on  the  other,  con- 
cerning which  there  was  no  Dispute. 

Now  upon  the  best  Consideration  I  have  been  able  to  give 
this  Matter,  I  am  very  clear  of  Opinion,  that  at  the  Trial,  I  ought 
not  to  have  admitted  the  Evidence  of  Usage.  But  the  Point  of 
Law  is  here  settled ;  and,  when  once  solemnly  settled,  no  particular 
Usage  shall  be  admitted  to  weigh  against  it:  This  would  send 
every  thing  to  Sea  again.  It  is  settled  by  two  Judgments  in 
Westminster-Hall,  both  of  them  agreeable  to  Law  and  to  Con- 
venience. The  two  Cases  I  go  upon  are,  Moore  and  Manning  in 
Comyns,  and  Acheson  and  Fountain  in  Strange.  These  Cases  go 
upon  a  general  Proposition  in  Law,  that  an  Indorsement  to  A. 
implies  or  Order,  and  is  negotiable. 

The  main  Foundation  is,  to  consider  what  the  Bill  was  in  its 
Origin.    The  present  Bill,  in  its  original  Creation,  was  not  a  bare 
Authority,  but  a  negotiable  Draught.     There  are  no  restrictive 
Words  in  it.     And  whatever  carries  the  Property,  carries  the. 
Power  to  assign  it. 

It  were  absurd,  if  the  Merchants  Opinion  should  prevail,  that 
this  is  now  converted  into  a  personal  Authority.     If  it  be  such, 


Edie  &  Laird  v.  East  India  Co.  295 

that  the  Indorsee  dies,  it  could  not  go  to  his  Executors  and 
Administrators;  in  whom  most  clearly  the  Property  of  the  Bill 
does  vest. 

Upon  this  Ground,  that  the  Point  is  settled  both  by  King's 
Bench  and  Common  Pleas,  and  well  settled,  I  think  there  should 
be  a  new  Trial.  Otherwise  also,  I  should  be  of  the  same  Opinion. 
Certainly,  the  Suggestion  of  Surprize,  is  not  in  all  Cases  a  Reason 
for  a  new  Trial ;  but  in  particular  Cases,  such  as  the  present,  it 
may  be. — The  Question  of  Costs  is  very  peculiar.  There  is  a 
Verdict  in  part  for  the  Plaintiff,  which  already  carries  Costs  for 
him.  But,  for  Form's  Sake,  we  must  set  aside  the  whole  Ver- 
dict, which  is  usually  done  on  Payment  of  Costs.  But  this  will 
be  giving  Defendants  Costs,  which  they  could  not  otherwise  have, 
merely  because  they  have  obtained  an  improper  Verdict.  There- 
fore I  think,  that  under  these  particular  Circumstances,  the  Ver- 
dict should  be  set  aside  without  Costs. 

Denison  Justice.  I  am  of  the  same  Opinion.  If  the  Words. 
to  A.  B.  only  were  inserted,  I  should  think  it  would  not  be  restric- 
tiveT~At  least  it  should  be  left  to  a  Jury.  In  Rawlinson  and  Stone , 
M.  20  Geo.  2.  An  Inland  Bill  of  Exchange  was  drawn  payable  to 
A.  or  Order,  who  indorsed  it  to  B.  without  adding  any  thing 
more.  The  Question  was,  Whether  there  was  such  an  Interest  in 
the  Executor  of  the  Assignee,  as  that  he  might  assign  it.  The 
Court  held,  upon  Enquiry  from  Merchants,  that  it  might  be 
indorsed  thus:  "C.  Executor  or  Administrator  of  B."  When_a_ 
MatLsaysJ_^Pay  to  A."  the_Law  savs.  it  is  "to  A._orJ)rder."  He 
then  says,  I  intend  it  should  not  be  so.  What  signifies  what  you 
Intend?    The  Law  intends  otherwise?.   Same  Opinion  as  to  Costs. 

Foster  Justice.  I  am  of  the  same  Opinion.  This  is  now  the 
settled  Law,  and  ought  not  to  have  been  left  to  a  Jury,  People 
talk  of  the  Custom  of  Merchants.  This  Word  Custom  is  apt  to 
mislead  our  Ideas.  The  Custom  of  Merchants,  so  far  as  the  Law 
regards  it,  is  the  Custom  of  England:  and  therefore  Lord  Coke 
calls  it,  very  properly,  the  Law-Merchant.  We  should  not  con- 
found general  Customs  with  special  local  Customs.  I  think  there 
should  be  no  Costs. 

Wilmot  Justice.  There  are  two  Questions.  Whether  the 
Law  is  fully  settled,  and  upon  what  Principles?  It  is  certainly 
now  settled,  and  upon  these  Principles.  The  Original  Contract 
between  the  Drawer  and  Payee,  is  to  pay  to  the  Payee  and  his 
Assigns,  and  the  Assigns  of  such  Assigns,  in  infinitum.  There  is 
the  same  Privity,  between  the  Drawer  and  the  last  Assignee,  as 
the  first.    The  first  assigns  over  that  Chose  in  Action,  which,  in 


296  Indorsee  the  Agent  of  Indorser 

its  Nature  and  by  the  express  Permission  of  Law,  is  assignable, 
with  the  same  Privileges  and  Advantages,  that  it  had  when  he 
received  it.  It  might  be  a  considerable  Question,  whether  a  man 
can  limit  and  modify  the  Property  or  not,  even  by  express  Words 
of  Restriction,  so  as  to  check  its  Currency.  By  giving  a  bare 
Authority,  he  may  do  it;  as  "Pay  to  A.  for  my  Use;" — But  if  he 
indorses  it  generally,  I  should  have  a  great  Doubt ;  supposing  it 
purchased  by  a  subsequent  Indorsee,  for  a  valuable  Consideration. 
In  the  present  Case,  I  think  assigning  it  to  A.  carries  the  Prop- 
erty, with  all  its  Qualities.  It  implies  a  Consideration  to  have 
been  given.  I  have  a  Note  of  Acheson  and  Fountain.  Mr. 
W ear g  then  cited  a  Case  so  determined  in  Common  Pleas,  prob- 
ably that  of  Moore  and  Manning.  Another  Case  shews  the  lib- 
erality, with  which  Indorsements  have  been  construed.  Carth.  403. 

The  Question  was,  Whether  Indorsement  to  the  Order  of  A. 
will  enable  A.  to  maintain  an  Action.  Determined,  that  it  will. 
If  so,  a  fortiori,  an  Indorsement  to  A.  will  enable  him  to  indorse 
it.  Custom 'of  Merchants  is  the  general  universal  Law.  Facts 
must  be  reiterated  to  make  such  a  Custom.  The  Opinion  of  Mer- 
chants is  nothing.  Special  Custom  of  Merchants  has  been  con- 
trolled in  a  Case,  where  an  Indorser  had  divided  a  Note  and 
indorsed  it  to  several  Persons.     Carth.  466  Salk. 

Held,  that  the  Indorsor  cannot  vary  the  original  Contract, 
and  split  one  Note  into  Twenty.  Determined  to  be  a  void  Custom, 
though  allowed  to  be  the  Custom  of  Merchants.  Same  Opinion 
as  to  Costs. 

Nezv  Trial  was  granted  without  Payment  of  Costs. 


V-  ^ 


J&A^**^-'    - 


INDORSEMENT    CONSTITUTING   THE    INDORSEE   THE   AGENT   OF   THE 

INDORSER.  §  38 2. 

Locke  v.  Leonard  Silk  Company  {1877),  37  Mich.  479. 

Error  to  Wayne. 

Assumpsit.    The  facts  are  stated  in  the  opinion. 

Moore  &  Moore,  for  plaintiff  in  error. 

E.  Y.  Swift  and  Hoyt  Post,  for  defendant  in  error. 

Marston,  J.  Defendant  in  error  commenced  an  action  of 
assumpsit  in  justice's  court  to  recover  the  amount  due  on  a  prom- 
issory note  given  by  Locke  to  the  company.     *     *     *     On  the 


Smith  v.  Bayer  et  al.  297 

trial,  the  plaintiff  recovered  judgment.  The  cause  was  then 
removed  by  certiorari  to  the  circuit  court,  where  the  judgment  of 
the  justice  was  affirmed.    The  case  comes  here  on  writ  of  error. 

The  note  offered  in  evidence  was  endorsed  "Pay  H.  A. 
Redfield,  cashier,  or  order,  for  collection,"  and  it  is  claimed  that 
by  this  endorsement  the  plaintiff  parted  with  all  title  and  inter- 
est in  the  note  and  was  not  therefore  entitled  to  recover.  This 
position  is  not  well  taken;  the  endorsement  is  for  a  special 
purpose,  that  of  collection  only.  If  paid,  the  proceeds  would  havjT 
belonged  to  the  plaintiff ;  the  title  to  the  note,  and  the  proceeHT 
"thereof,  when  collected,  remained  in  the  plaintiff?  Sutherland 
v.  First  National  Bank,  31  Mich.  232. 

Judgment  reversed,  but  only  on  matters  of  practice. 

Judgment  reversed. 

The  other  Justices  concurred.  -^Ltr-    ^5L*><*~~ 


Smith  v.  Bayer  et  al.  (1905)  (Ore.),  79  Pac.  Rep.  497. 

Appeal  from  Circuit  Court,  Multnomah  county. 

M.  C.  George,  Judge. 

Action  by  Milton  W.  Smith  against  J.  C.  Bayer  and  another. 
From  a  judgment  in  favor  of  plaintiff,  defendants  appeal. 
Reversed. 

This  is  an  action  on  a  promissory  note  for  $290,  executed 
and  delivered  by  the  defendants  to  the  Concordia  Loan  &  Trust 
Company  of  Kansas  City,  Mo.,  on  January  30,  1896,  due  on  or 
before  August  1st  following.  The  complaint  alleges  the  execu- 
tion of  the  note,  its  indorsement  to  the  plaintiff  before  maturity, 
the  making  of  certain  payments  thereon  by  defendants,  and  prays 
judgment  against  them  for  the  balance.  The  answer  admits  the 
genuineness  of  the  note,  denies  that  it  was  indorsed  to  the  plain- 
tiff before  maturity  or  at  all,  and  affirmatively  alleges  that  it 
remained  the  property  of  the  payee  named  therein  until  after 
maturity,  when  it  was  transferred  to  the  Fidelity  Trust  Company, 
and  that  thereafter  the  defendants  paid  the  note  to  the  trust  com- 
pany and  satisfied  it  in  full.  The  reply  denies  the  allegations  of 
the  answer,  and  affirmatively  pleads  that  at  all  the  times  men- 
tioned the  plaintiff  was  and  now  is  the  owner  in  his  own  right  of 
two-sevenths  of  the  note,  and  since  the  21st  day  of  July,  1896, 
has  been  and  now  is  the  owner  of  the  remaining  five-sevenths 
for  collection.     Upon  the  trial  plaintiff  produced  the  note,  with 


29b  Indorsee  the  Agent  of  Indokser 

an  indorsement  thereon  as  follows:  "Pay  to  the  order  of  Milton 
W.  Smith  for  collection  and  return  to  Concordia  Loan  &  Trust 
Company,  A.  D.  Rider,  treasurer,  OK,  F.  Amelung."  He 
testified  that  he  received  the  note  in  due  course  of  mail  from 
the  loan  and  trust  company,  inclosed  in  a  letter  which  the  witness 
produced,  and  which  stated,  in  substance,  that  the  note  was 
remitted  for  collection ;  that  he  knew  the  signature  to  the  letter, 
had  seen  the  handwriting,  and  knew  that  it  was  the  signature  of 
the  Concordia  Loan  &  Trust  Company,  and  the  person  signing  it 
had  authority  to  represent  the  company ;  that  such  person  was 
and  had  been  employed  by  the  company  for  a  good  many  years, 
doing  business  for  it  and  exercising  such  authority ;  that  witness 
knew  that  he  had  the  right  to  make  contracts  in  the  name  of  and 
for  the  company;  that  he  (witness)  knew  the  indorsement  on  the 
note  to  be  that  of  the  payee;  that  Rider,  who  made  it,  was  the 
treasurer  of  the  company,  and  had  done  business  for  it  as  such 
for  a  good  many  years ;  that  witness  knew  him  personally,  had 
seen  him  write,  and  knew  that  his  signature  to  the  indorsement 
was  genuine ;  that  the  other  name  to  the  indorsement  was  simply 
an  "O.  K."  or  ratification  by  some  one ;  that  Rider  is  the  treas- 
urer of  the  company,  and  has  always  done  its  business.  The  note 
was  then  admitted  in  evidence  over  defendants'  objection  on  the 
ground  that  the  indorsement  did  not  transfer  such  title  to  the 
plaintiff  as  would  support  an  action  thereon  in  his  own  name, 
and  because  the  genuineness  of  the  indorsement  had  not  been 
sufficiently  proved.  The  witness  was  also  permitted  to  testify, 
over  defendants'  objection  and  exception,  that  he  was  in  fact  the 
owner  in  his  own  right  of  two-sevenths  of  the  note,  and  the 
court  instructed  the  jury  that  any  settlement  made  by  the  defend- 
ants with  the  payee  or  owner  of  the  note  after  the  indorsement 
thereof  to  the  plaintiff  would  not  be  a  defense  against  the  plain- 
tiff's two-sevenths  interest  therein,  although  it  would  be  such 
defense  against  the  other  five-sevenths.  The  verdict  and  judg- 
ment were  in  favor  of  the  plaintiff,  and  the  defendants  appeal. 

Ralph  R.  Duniway,  for  appellants. 
Milton  W .  Smith,  in  pro.  per. 

Bean,  J.  (after  stating  the  facts).  The  record  bristles  with 
assignments  of  error.  Indeed,  it  would  seem  that  almost  every 
step  in  the  progress  of  the  trial  was  objected  to  by  the  defend- 
ants, and  exceptions  saved  to  the  rulings  of  the  court.  The 
questions  thus  raised  are  embodied  in  the  record  and  discussed 
more  or  less  in  the  brief.     They  are,  however,  mostly  technical 


Smith  v.  Bayer  et  al.  299 

and  without  merit.  There  was,  in  our  opinion,  sufficient  proof 
of  the  genuineness  of  the  indorsement  on  the  promissory  note 
offered  in  evidence  to  make  a  prima  facie  case  in  favor  of  the 
plaintiff.  The  plaintiff,  testifying  in  his  own  behalf,  said  that 
he  was  familiar  with  the  signature  of  the  loan  and  trust  company, 
knew  that  the  man  who  signed  the  indorsement  was  an  officer  of 
the  company  and  had  been  doing  business  for  it  for  many  years, 
and  that  his  signature  to  the  indorsement  was  genuine.  The 
weight  to  be  given  to  this  testimony  was,  of  course,  for  the  jury. 
The  only  points  of  real  importance  on  this  appeal  are:  (i) 
Whether  the  indorsement,  being  on  its  face  "for  collection  and 
return"  to  the  payee,  vested  plaintiff  with  such  a  title  as  will 
enable  him  to  maintain  an  action  thereon  in  his  own  name;  and, 
if  so,  (2)  whether  the  court  erred  in  admitting  parol  testimony 
tending  to  show  that  plaintiff  was  in  fact  the  owner  of  two- 
sevenths  of  the  note,  and  in  instructing  the  jury  that,  if  such  was 
the  case,  any  settlement  with  the  payee  or  assignee  subsequent 
to  the  date  of  the  indorsement  to  plaintiff  would  be  no  defense 
as  against  plaintiff's  two-sevenths.  The  indorsement  of  a  prom- 
issory note  by  the  payee  with  the  words  "for  collection."  or  the 
like,  is  not  strictly  a  contract  of  indorsement-  but  rather  the 
creation  of  a  power,  the  indorsee  being  the  mere  agent  of  the 
indorser  to  receive  and  enforce  payment  for  his  use.  The  title 
to  the  note  and  the  proceeds  thereof  remain  in  the  payee,  and  he 
may  maintain  suitable  actions  and  proceedings  to  enforce  his 
nghtT  White  v.  National  Bank,  102  U.  S.  658,  26  L.  Ed.  250; 
Commercial  Bank  of  Pennsylvania  v.  Armstrong,  148  U.  S.  50, 
13  Sup.  Ct.  533,  37  L.  Ed.  363;  Sweeney  v.  Easter,  1  Wall.  166, 
17  L.  Ed.  681 ;  Williams,  Deacon  &  Co.  v.  Jones,  yy  Ala.  294; 
People's  Bank  of  Lewisburg  v.  Jefferson  County  Savings  Bank, 
106  Ala.  524,  17  South.  728,  54  Am.  St.  Rep.  59;  Central  Rail- 
road v.  First  National  Bank  of  Lynchburg,  Virginia,  73  Ga.  383. 
There  is,  in  the  absence  of  a  statute,  some  conflict  in  the  decisions 
as  to  whether  such  an  indorsee  can  sue  in  his  own  name.  The 
weight  of  authority  seems  to  be  in  favor  of  his  right  to  do  so. 
4  Am.  &  Eng.  Ency.  Law  (2d  Ed.)  274;  Freeman  v.  Exchange 
Bank,  87  Ga.  45,  13  S.  E.  160;  Roberts  v.  Parrish,  17  Or.  583,  22 
Pac.  136;  Falconio  v.  Larsen,  31  Or.  137,  48  Pac.  703;  Selover, 
Bank  Collections,  §  28.  And  it  is  now  so  provided  by  statute  in 
this  state.  B.  &  C.  Comp.  §4439;  Selover,  Negotiable  Instru- 
ments Law,  §155;  Crawford,  Neg.  Inst.  Law,  §67.  We  are 
therefore  of  the  opinion  that  the  present  action  was  rightfully 
brought  in  the  name  of  the  plaintiff.     It  was  open,  however,  as 


3oO  Indorsee  the  Agent  of  Indorser 

against  him,  to  all  defenses  which  could  have  been  made  if  the 
notes  had  remained  in  the  hands  of  the  indorser,  and  the  action 
had  been  brought  by  it.  Wilson  v.  Tolson,  79  Ga.  137,  3  S.  E. 
900;  Lcary  v.  Blanchard,  48  Me.  269.  The  indorsement  did  not 
pass  thejitle.  nor  did  it  deprive  the  defendants  of  any  defense 
they  may  otherwise  have  against  the  note.  It  merely  created  the 
plaintiff  the  agent  of  the  payee  for  collection  with  the  right  to 
sue  in  his  own  name.  The  plain  meaning  of  such  an  indorse- 
ment, as  said  by  Mr.  Justice  Miller  {White  v.  National  Bank, 
102  U.  S.  658,  26  L.  Ed.  250),  is  that  the  maker  of  the  note  "is 
to  pay  it  to  the  indorsee  for  the  use  of  the  indorser.  The  indorsee 
is  to  receive  it  on  account  of  the  indorser.  It  does  not  purport 
to  transfer  the  title  of  the  paper  or  the  ownership  of  the  money 
when  received.  Both  these  remain,  by  the  reasonable  and  almost 
necessary  meaning  of  the  language,  in  the  indorser."  Such  being 
the  effect  of  the  restrictive  indorsement  and  the  character  of  the 
title  acquired  by  the  plaintiff  by  reason  thereof,  it  necessarily 
follows  that  the  court  was  in  error  in  qd'"m'tting  evidence  to  con- 
tradictJ:he_contract  of  indorserrjerit  by  showingjhat  the  note  was 
not  transferred  to  the  plaintiff  for  TO]]eclioiLa^_sliojyji.oriJtsJaxeu 
but  that  he  a(VtnaTTy~?5wne33wo^sevenths  thereolinJhis  own  right, 
arid  in  insfructing  the  jury  that  a  settlement  made  with  the  payee 
after  the  indorsement  to  plaintiff  would  be  no  defense  against 
plaintiff's  two-sevenths.  The  contract  of  indorsement  is  in 
writing.  The  terms  thereof  are  plain  and  unambiguous,  and 
parol  evidence  is  not  admissible  to  vary  or  contradict  it.  White 
v.  National  Bank,  102  U.  S.  658,  26  L.  Ed.  250 ;  Leary  v.  Blanch- 
ard, 48  Me.  269;  Howe  v.  Taylor,  9  Or.  288.  The  plaintiff's 
action  is  based  on  the  indorsement,  and  not  on  any  interest  he 
may  have  in  the  note.  He  is  made  by  the  indorsement  the  mere 
agent  of  the  payee  for  its  collection.  The  defendants'  obligation, 
notwithstanding  the  indorsement,  is  to  the  payee  or  subsequent 
owner  of  the  note,  and  not  to  the  plaintiff.  If  they  settled  and 
paid  the  note  to  the  payee  or  assignee,  such  settlement  is  a  com- 
plete defense  to  art  action  thereon  by  plaintiff  as  a  mere  agent 
for  collection.  It  may  be  suggested  that,  because  the  jury  found 
a  verdict  in  favor  of  plaintiff  for  the  entire  amount  sued  for, 
they  must  have  found  that  the  settlement  alleged  as  a  defense 
was  never  made,  and  therefore  the  error  of  the  court  in  charging 
the  jury  in  relation  thereto  was  harmless.  The  ruling  of  the 
court  upon  this  point  and  its  instructions  to  the  jury  injected 
into  the  case  an  issue  not  proper  to  be  tried,  the  result  of  which 


Blaine  et  al.  v.  Bourne  et  al.  301 

was  to  confuse  and  mislead  the  jury,  and  we  do  not  think  it  can 
be  said  that  the  error  was  harmless. 

From  these  views  it  follows  that  the  judgment  of  the  court 
below  must  be  reversed,  and  a  new  trial  ordered.  Many  of  the 
other  questions  argued  in  the  briefs  will  probably  not  arise  on  a 
retrial,  and  need  not,  therefore,  be  noticed  at  this  time. 


LtTL-      |£&ft-~^- 


INDORSEMENT    VESTING    TITLE    IN    INDORSEE    IN    TRUST.       §  38 3. 

Blaine  et  al.  v.  Bourne  et  al.  {1875),  11  R.  I.  119. 

Brozvne  &  Van  Slyck,  for  plaintiffs. 
James  M.  Ripley,  for  defendants. 

Assumpsit  on  a  bill  of  exchange,  heard  by  the  court. 

March  6,  1875.  Potter,  J.  The  draft  in  question  was  as 
follows : 

"Banking  House  of  Blaine,  Gould  &  Short, 

"North  East,  Pa.,  August  16,  1873. 
"Thirty  days  after  date  pay  to  the  order  of  Frank  Thayer 
seven  hundred  dollars.  "Frank  Thayer. 

"To  Messrs.  B.  G.  Chace  &  Co.,  Providence,  R.  I. 

"Due  September  18." 

Thayer  was  the  agent  in  Pennsylvania  to  make  purchases  for 
Chace  &  Co.,  of  Providence,  and  he  drew  on  them  for  payment. 

This  draft  was  indorsed  by  Thayer  in  blank,  and  was  dis- 
counted by  the  plaintiffs  before  acceptance.  The  plaintiffs 
indorsed  it  as  follows : 

"Pay  Jay  Cooke  &  Co.  or  order  on  account  of  Blaine,  Gould 
&  Short,  North  East,  Pa.  "Alfred  A.  Short,  Cash'r." 

By  Jay  Cooke  &  Co.  it  was  sent  to  the  defendants  in  Provi- 
dence for  collection,  indorsed  as  follows: 

"Pay  to  the  order  of  Messrs.  Bourne  &  Co. 

"Jay  Cooke  &  Co." 

The  draft  was  paid  by  Chace  &  Co.  to  the  defendants  about 
noon  of  September  18.  Jay  Cooke  &  Co.  stopped  payment  about 
eleven  a.  m.  of  that  day,  and  about  one  p.  m.  of  the  same  day  their 
failure  was  generally  known  in  Providence. 

The  draft  was  never  the  property  of  Jay  Cooke  &  Co..  and 


302  Indorsement  Vesting  Title  in  Indorsee 

was  never  credited  by  them  to  the  plaintiff,  but  was  merely 
received  by  them  for  collection. 

Jay  Cooke  &  Co.  were  owing  the  defendants,  and  the  defend- 
ants credited  it  in  their  account  with  them,  and  claim  that  they 
had  a  right  so  to  do. 

The  rights  of  parties  to  bills  forwarded  for  collection  have 
been  a  fruitful  source  of  litigation.  Questions  of  this  sort  have 
generally  arisen  where  some  party  becomes  insolvent,  and  the 
contention  is  who  shall  bear  the  loss. 

When  is  the  last  holder  of  paper  sent  for  collection  bound  to 
look  beyond  the  last  remitter? 

We  are  referred  by  defendants'  counsel  to  one  case  only,  Bank 
of  Metropolis  v.  New  England  Bank,  \J  Pet.  174;  also  in  1  How. 
U.  S.  234.  In  that  case  a  bank  had  forwarded  for  collection 
paper  with  a  general  or  unrestricted  indorsement  to  another  bank, 
which,  with  its  own  similar  indorsement,  had  sent  it  to  a  third 
bank  for  collection.  The  second  or  intermediate  bank  failed,  and 
on  the  day  of  its  failure  notified  the  third  bank  that  the  paper 
was  the  property  of  the  first  bank.  In  a  suit  by  the  first  against 
the  third  bank  to  recover  the  proceeds,  the  court,  while  admitting 
that  if  it  was  a  case  of  two  banks  acting  as  collecting  agents  for 
each  other,  and  where  no  consideration  was  paid  or  money 
advanced,  the  paper  would  remain  the  property  of  the  sender, 
holds  that  in  this  case  the  third  bank,  which  held  the  paper,  not 
having  notice  by  the  indorsement  or  otherwise  that  the  paper 
was  not  the  property  of  the  second  bank,  had  a  right  to  treat  it 
as  theirs,  and  was  not  bound  to  inquire;  and  that  where  two 
banks  dealt  together  in  this  way  for  several  years,  kept  an  account 
current,  and  mutually  credited  the  collections,  there  was  a  lien 
upon  the  paper  so  transmitted  for  the  balance  without  regard  to 
who  might  be  the  real  owner.  The  first  bank,  by  indorsing  the 
paper  in  such  a  manner  as  to  make  it  appear  prima  facie  the  prop- 
erty of  the  failing  bank,  had  no  particular  equity  in  its  favor. 

But  this  came  again  before  the  United  States  Supreme  Court 
in  Bank  of  Metropolis  v.  New  England  Bank,  6  How.  U.  S.  212, 
where  the  court  lays  down  its  propositions  more  definitely ;  that 
if  the  collecting  bank,  at  the  time  of  the  dealings,  had  notice  that 
the  bill  was  not  the  preporty  of  the  intermediate  remitting  bank, 
but  had  been  merely  sent  by  them  for  collection  as  agent  for 
some  other  bank,  then  the  collecting  bank  had  no  right  to  retain 
for  any  balance  due  from  the  intermediate  bank  which  had  failed ; 
even  if  the  collecting  bank  had  no  notice,  they  could  not  retain  as 
against  the  real  owner,  unless  credit  had  been  given  to  the  inter- 


Blaine  et  al.  v.  Bourne  et  al.  303 

mediate  remitting  bank,  or  what  was  equivalent,  balances  suf- 
fered to  remain  to  be  met  by  such  paper;  but  if  the  latter  was 
the  case,  and  they  had  treated  the  intermediate  bank  as  the  owner, 
and  had  no  notice,  then  they  might  retain. 

And  there  are  further  explanations  of  the  decision  in  Wilson 
v.  Smith,  3  How.  U.  S.  763,  769.  And  see  it  criticised  and 
restricted  in  McBride  v.  Farmers'  Bank  of  Salem,  25  Barb.  S.  C. 
657,  661,  which  case  was  affirmed  on  appeal  in  McBride  v.  Farm- 
ers' Bank,  26  N.  Y.  450.  See  also  Reeves  et  al.  v.  State  Bank, 
8  Ohio  St.  465;  Jones  v  Milliken  &  Son,  41  Pa.  St.  252;  Dick- 
erson  v.  Wasson,  54  Barb.  S.  C.  230 ;  also  in  47  N.  Y.  439.  There 
are  some  cases  going  still  further  in  favor  of  the  original  remit- 
ting bank,  and  allowing  parol  evidence  to  show  the  fact.  Law- 
rence v.  Stonington  Bank,  6  Conn.  521,  and  cases  there  cited; 
Bank  of  Washington  v.  Triplctt  &  Neale,  1  Pet.  25 ;  Commercial 
Bank  of  Clyde  v.  Marine  Bank,  3  Keyes,  337 ;  also  in  1  Ab.  Ct. 
App.  Dec.  405. 

A  general  indorsement  of  bills  is  prima  facie-  evidence  of 
property  in  the  indorsee,  and  even  where  it  is  subject  to  any  equity 
or  trust  between  former  parties,  may  change  the  legal  property 
as  to  bona  fide  holders  for  value.  Collins  v.  Martin,  1  B.  &  P. 
648.  But  even  where  there  is  a  general  indorsement  of  paper 
sent  only  for  collection,  it  will  still  remain  the  property  of  the 
sender  as  to  all  persons  having  notice. 

The  counsel  for  the  plaintiffs  say  that  the  present  case  would 
come  under  the  head  of  what  is  in  some  places  denominated  a 
"short  entry."  It  would  seem  that  in  London  it  was  a  custom 
{Giles  et  al.  v.  Perkins,  et  als.,  9  East,  12,  and  counsel  arguendo 
in  Ex  parte  Thompson,  1  Mont.  &  Mac.  102,  no)  for  bankers  to 
receive  bills  for  collection  and  to  enter  them  immediately  in  their 
customers'  accounts,  but  never  to  carry  out  the  proceeds  in  the 
column  to  their  credit  until  actually  collected ;  and  this  was  called 
a  "short  entry,"  or  "entering  short."  And  such  bills  always 
continued  the  property  of  the  customer,  unless  the  contrary  was 
to  be  inferred  from  some  course  of  dealing.  Whereas  country 
bankers  in  England  generally  credited  to  their  customers  at  once 
all  bills  considered  good,  and  generally  allowed  drafts  upon  the 
proceeds.  And  even  in  the  latter  cases  Lord  Ellenborough  held 
such  bills  did  not  pass  to  the  assignees  in  bankruptcy,  if  there 
was  a  balance  in  favor  of  the  customer  over  and  above  the  bills. 
(Giles  et  al.  v.  Perkins  et  als.,  9  East  12;  Ex  parte  Harford,  2 
Rose,  163.)  But  Lord  Eldon  held  that  where  they  were  with  the 
knowledge  of  the  customer  entered  as  cash,  and  the  customer  was 


304  Indorsement  Vesting  Title  in  Indorsee 

entitled  to  draw  against  them,  he  could  not  claim  the  specific  bills. 
(Ex  parte  Sargeant,  i  Rose,  153;  Ex  parte  Thompson,  1  Mont. 
'&.  Mac.  102,  A.  D.  1828.)  But  even  where  the  custom  was  to 
enter  short  and  it  was  not  done,  this  would  not  change  the  prop- 
erty, unless  some  act  of  the  customer  concurred.  (Ex  parte  Sar- 
geant,  1  Rose,  153;  Ex  parte  Pease,  1  Rose,  232;  and  the  Vice- 
Chancellor's  opinion  in  Ex  parte  Thompson,  1  Mont.  &  Mac. 
102,  112). 

But  besides  the  ground  that  this  was  equivalent  to  a  short 
entry,  and  that  the  cases  decided  upon  that  point  apply  to  it, 
it  is  contended  that  in  this  case  the  effect  of  the  restriction  in  the 
indorsement  was  to  give  all  subsequent  holders  express  notice 
of  the  trust,  and  we  think  this  view  of  the  plaintiff's  counsel  is 
correct. 

The  indorsee  is  rather  an  agent  of  the  indorser  with  pnwer  of 
substitution,  and  the  bill  is  still  in  the  possession  of  the  indorser 
by  his  agent.  (Ex  parte  Sargeant,  1  Rose,  153.)  The  very  mode 
of  indorsement  in  this  case  shows  that  it  is  not  a  case  of  ordi- 
nary indorsement,  and  that  no  consideration  has  been  paid  for  it. 
(Eadie  &  Laird  v.  E.  India  Co.,  1  W.  Bla.  295;  also  in  2  Burr. 
1216.)  The  bill  must  be  taken  by  the  holder  subject  to  the  trust  • 
and,  says  Judge  Story  (On  Agency,  §211),  if  he  voluntarily 
consents  to  or  aids  in  any  other  appropriation  he  is  responsible  • 
and~says  Judge  Byles  (On  Bills,  *I57),  he  holds  the  bill  or 
money  as  trustee  for  the  restraining  party,  and  is  liable  to  the 
party  making  the  restriction.  The  words  are  notice  that  the 
restricted  indorsee  has  no  property  in  the_billj  that  he  is  a  mere 
trustee,  and  that  he  can  appoint  no  sub-agent  except  for  the  pur- 
pose  of  holding  the  bill  or  money  on  the  same  trust,  and  if  the 
holder  pays  it  to  the  intermediate  agent,  he  becomes  responsible 
for  its  misapplication. 

In  the  case  of  Sigourney  v.  Lloyd  et  als.,  8  B.  &  C.  622 ;  also 
in  3  M.  &  R.  58,  and  in  Dan.  &  LI.  132;  2  Chitty  Jun.  on  Bills, 
1412,  1439,  it  was  contended  that  an  indorsement,  "Pay  to  B. 
for  my  use,"  was  a  mere  direction  to  B.  as  to  the  application  of 
the  money;  but  Lord  Tenterden  said  that  if  it  meant  no  more 
the  words  were  useless ;  as  he  would  be  so  liable  without  those 
words. 

In  that  case  the  payee  indorsed  generally  to  A.  A.,  the  plain- 
tiff, indorsed,  "Pay  B.  or  order  for  my  use;"  the  defendants 
discounted  it  and  applied  it  to  the  credit  of  B.  B.  failed,  and 
it  was  held  that  the  indorsement  was  sufficient  notice  to  prevent 
its  transfer  for  the  benefit  of  any  other  person;  that  all  subse- 


Estabrook  v.  Smith  805 

quent  indorsees  were  trustees  for  the  plaintiff;  and  that  whoever 
advanced  any  money  on  it  did  it  at  his  peril.  And  on  appeal 
this  judgment  was  confirmed  by  the  Exchequer  Chamber,  the 
court  holding  that  the  money  to  whomsoever  paid  was  in  trust 
for  the  indorser.  {Lloyd  et  al.  v.  Sigourncy,  5  Bing.  525;  also 
in  3  M.  &  P.  229,  and  3  You.  &  Jer.  220,  and  Dan.  &  LI.  213). 

This  custom  of  restricted  indorsing  is  not  of  late  origin,  but 
is  spoken  of  as  usual  in  Snce  ct  al.  v.  Prescott  et  als.,  1  Atk.  245, 
249,  A.  D.  1743;  the  object  being,  as  there  stated,  to  prevent 
the  indorsement  being  filled  up  in  such  a  manner  as  to  pass  the 
interest  in  the  bill. 

If  the  defendants  in  the  present  suit  had  paid  the  cash  to  Jay 
Cooke  before  hearing  of  the  failure,  it  would  have  presented  a 
different  question.  But  they  hadjiojight  to  apply  the  money  of 
the  plaintiffs  to  the  payment  of  a  debt  due  to  them  ("the  defend- 
ants) frorrTTay  Cooke.  This  is  not  such  a  payment  as  can  pro- 
tect them  against  a  suit  by  the  plaintiffs,  the  real  owners.  (  Truet- 
tel  v.  Barandon,  2  Chitty  Jun.  on  Bills,  1002;  also  in  8  Taunt. 
100,  and  1  Moore,  543 ;  Thompson  v.  Giles,  2  Chitty  Jun.  on 
Bills,  1 190;  also  in  2  B.  &  C.  422,  and  3  D.  &  R.  733;  Lloyd's 
note  to  Paley,  quoted  in  full  in  Story  on  Agency,  §  228,  n. ;  1 
Bell's  Comm.  *270,  which  work  is  praised  by  Mr.  Warren  as 
being  a  "mine  of  commercial  law." 

Judgment  for  plaintiffs. 


INDORSEMENT  WITHOUT  WORDS  OF  NEGOTIABILITY.      §  38 3. 

Leavitt  v.  Putnam.    (See  page  p?.) 


INDORSEMENT  BY  PARTNERS.  §  43. 

Estabrook  v.  Smith  (1856),  6  Gray,  570,  66  Am.  Dec.  443. 

Action  of  contract  upon  a  promissory  note,  made  by  the 
defendant,  payable  to  "Estabrook  &  Richmond  or  order,"  and 
indorsed  by  Richmond  in  his  own  name,  for  the  purpose  of  trans- 
ferring his  interest  therein  to  his  copartner,  Estabrook,  the  plain- 
tiff.    The  parties   submitted   to   the   decison   of  the   court   the 


30(3  Indorsement  by  Partners 

question,  whether  this  indorsement  was  sufficient  to  enable  the 
plaintiff  to  maintain  an  action  thereon  in  his  own  name. 

D.  Foster,  for  the  plaintiff. 

E.  IVashburn,  for  the  defendant. 

Dewey,  J.  We  take  the  rule  to  be  uncontroverted,  that  ji_ 
promissory  note  payable  "to  A.  B.  or  order"  cannot  be  trans- 
ferred, so  as  to  give  a  right  of  action  in  the  name  of  a  holder, 
not  the  original  party,  without  an  indorsement  by  the  payee. 
The  application  of  this  principle  seems  to  be  decisive  against 
the  right  of  the  plaintiff  alone  to  maintain  this  action.  The 
action  is  brought  by  Estabrook  upon  a  note  made  to  a  copartner- 
ship, Estabrook  &  Richmond,  promising  them,  by  the  name  of 
their  copartnership,  to  pay  them  or  order  a  certain  sum  of  money. 
That  this_action  cannot  be  maintained  by  the  plaintiff,  as  payee 
of  the  note,  is  obvious;  as  that  would  at  once  present  a  case 
where  there  was  an  omission  to  join  all  the  payees  as  plaintiffs, 
which  would  be  fatal  to  the  action.  The  only  question  therefore, 
is,  whether  this  note  is  legally  indorsed,  so  as  to  enable  the  plaintiff 
to  maintain  the  action  as  indorsee  ? 

The  payees  of  the  note  are  Estabrook  &  Richmond,  who 
compose  a  partnership.  An  indorsement  of  the  note  by  the 
payees  would  therefore  be  an  indorsement  by  Estabrook  &  Rich- 
mond, and  this  would  correspond  with  the  form  of  the  note,  and 
transfer  the  same  to  their  indorsee.  One  partner  might  properly 
transfer  the  note  bv  indorsement,  but  he  must  do  it  by  indorsing 
the  partnership  name.  Any  thing  less  than  this  seems  to  be  an 
irregularity,  and  a  departure  from  the  legitimate  mode  of  transfer 
of  a  negotiable  note  or  bill,  payable  to  the  order  of  a  copartnership. 

It  is  not  contended  that  the  indorsement  by  Richmond  alone 
would  have  been  sufficient  to  authorize  an  action  in  the  name  of 
a  third  person  as  indorsee ;  but  it  is  urged  that  such  indorsement 
is  sufficient  to  authorize  an  action  by  the  other  partner,  Estabrook, 
as  indorsee.  The  position  taken  is,  that  Richmond,  by  his 
indorsement,  has  parted  with  all  his  interest,  and  so  vested  the 
entire  note  in  Estabrook.  This  may  be  all  true  as  between  Rich- 
mond and  Estabrook,  and  might  be  quite  sufficient  to  settle,  as 
between  them,  to  whose  use  this  money  was  to  be  held  when 
collected.  But  the  question  still  recurs,  as  to  the  effect  of  such 
an  indorsement  as  against  the  maker  of  the  note,  and  whether  it 
creates  the  legal  relation  of  indorsee.  As  already  remarked,  Jhe 
present  actojfmaintainable  at_all,  is  maintainable  bv  Estabrook 
as  indorsee  of  thelTote.     To  constituigjaJfilglJ^PrsqpTgnt,  the 


Dwight  v.  Pease  307 

payees,  Estabrpok  &  Richmond,  must  be  the  indorsers.  But  no 
such  indorsement  has  ever  been  made.  No  one  has  professed  to 
indorse  the  note  in  the  partnership  name.  The  only  indorsement 
is  that  of  Richmond  individually ;  and  although  it  might  be  quite 
competent  for  the  payees,  Estabrook  &  Richmond,  in  their  part- 
nership name,  to  have  indorsed  it  to  Estabrook,  yet  they  have 
not  done  so. 

We  have  found  no  authority  for  maintaining  an  action  by  an 
indorsee  under  such  circumstances.  The  case  of  Goddard  v. 
Lyman,  14  Pick.  268,  which  seems  to  be  the  most  favorable  case 
cited  to  sustain  the  position  taken  by  the  plaintiff,  was  widely 
different  from  the  present  case.  In  that  case,  although  the  origi- 
nal indorsement  was  by  two  only  of  three  payees,  and  made  to 
the  other  payee  and  a  third  person,  yet  it  was  subsequently 
indorsed  by  the  third  payee,  and  came  to  the  hands  of  the  plain- 
tiff, who  instituted  the  suit  with  the  indorsement  of  all  the  payees. 
That  case,  upon  its  facts,  does  not  therefore  furnish  any  pre- 
cedent for  this  case ;  although  some  of  the  remarks,  as  found  in 
the  opinion  of  the  court,  might  seem  to  indicate  a  broader  doctrine 
than  the  case  required. 

The  plaintiff  then  had  leave  to  amend,  on  terms,  by 

joining  the  other  partner,  and  had  judgment  for  the 

amount  of  the  note.  . 

\^-   &*\  ■ 

INDORSEMENT  BY   JOINT   PAYEES   NOT  PARTNERS.  §  43- 

Dwight  v.  Pease  (1842),  5  McLean,  94,  Fed.  Cas.  No.  421/. 

Mr.  Talbot,  for  defendants. 

Opinion  of  the  Court.  This  action  was  brought  upon  the 
following  promissory  note: 

"Detroit,  January  1st,  1837. 
"Two  years  after  date,  I  promise  to  pay  to  the  order  of 
Walter  Chester,  and  Pease,  Chester  &  Co.  one  thousand  and  five 
hundred  dollars,  for  value  received,  at  the  Farmers'  &  Mechanics' 
Bank  of  Michigan,  with  interest. 

"[Signed]     John  Chester." 

Indorsed:  "Pease,  Chester  &  Co.  and  also  D.  E.  Jones  in 
blank." 

The  declaration  contained  three  counts,  to  the  first  of  which 
there  was  a  demurrer.    This  count  states  that  one  John  Chester, 


308  Indorsement  by  Cashier  of  Bank 

on  the  I st  of  January,  1837,  made  his  note  payable  to  order  of 
Walter  Chester,  and  Pease,  Chester  &  Co.,  and  that  Pease,  Ches- 
ter &  Co.,  under  their  partnership  name,  indorsed  and  delivered 
the  said  note  to  the  plaintiff.  John  Chester,  the  maker,  was  a 
member  of  the  firm  of  Pease,  Chester  &  Co.  Demand  of  the 
note  when  due,  and  notice  to  the  defendants,  was  proved.  Walter 
Chester,  one  of  the  promisees  in  the  note,  seems  not  to  have 
indorsed  it,  and  this  is  fatal  to  the  right  of  the  plaintiff.  The 
interest  of  the  promisees  is  joint  in  the  note,  and  not  being  in 
partnership,  they  must  each  transfer  the  note.  (Chit.  Bills,  123; 
Tayl.  55,  Carvick  v.  Vickery,  2  Doug.  653 ;  Jones  v.  Radford,  1 
Camp.  83,  note,  21  E.  C.  L.  41.)  Only  one-half  of  the  note  was 
transferred  by  the  indorsement  of  Pease,  Chester  &  Co.,  and  this 
does  not  give  a  right  to  their  or  any  subsequent  assignee  to  sue  on 
the  note.  Recourse  against  the  maker  cannot  thus  be  divided  and 
suits  multiplied.  The  plaintiff  seeks  by  this  action  to  recover  the 
full  amount  of  the  note  against  the  defendants,  as  indorsers.  But 
as  he  holds  but  one-half  of  the  note  under  the  assignment,  the 
indorsement,  at  most,  can  only  be  evidence  of  that  amount.  The 
declaration  is  defective  in  not  averring  that  Walter  Chester,  one 
of  the  payees,  did  indorse  the  note. 

Demurrer  sustained.    The  plaintiff  dismissed  his  action. 


V1-  **Y 


INDORSEMENT  BY  CASHIER  OF  BANK.  §  44. 

Folger  et  al.  v.  Chase  et  al,  {1836),  18  Pick.  (Mass.)  63. 

This  was  assumpsit  against  the  executors  of  Joseph  Chase 
to  recover  the  amount  of  three  promissory  notes. 

The  first  note,  dated  April  nth,  1825,  was  made  by  E.  Dixon, 
for  the  sum  of  $867,  payable  to  the  order  of  the  testator  at  the 
Phcenix  Bank  in  Nantucket,  on  demand,  with  interest,  and  was 
indorsed  by  the  testator  to  the  President,  Directors  and  Company 
of  the  Phcenix  Bank,  the  testator  expressly  waiving  all  right  to 
notice  as  such  indorser.  Upon  a  separate  paper,  annexed  to  this 
note  by  a  wafer,  was  the  following  indorsement :  "P.  H.  Folger, 
Cashier." 

The  second  note,  dated  January  18th,  1830,  was  made  by 
James  Barker,  for  the  sum  of  $1,235.92,  and  was  payable  to  the 
order  of  the  testator,  at  the  Phcenix  Bank,  on  demand,  with  inter- 
est. The  third  note,  dated  September  21st,  1832,  was  made  by  the 
testator,  for  the  sum  of  $358.31,  payable  to  the  order  of  Edward 
Chase,  at  the  Phcenix  Bank,  on  demand,  with  interest.     These 


FOLGER    ET   AL.    V.    CHASE    ET    AL.  309 

two  notes  were  indorsed  by  the  respective  payees  and  by  "P.  H. 
Folger,  Cashier,"  the  payees  expressly  waiving  all  right  to  notice 
as  indorsers. 

Wilde,  J.,  delivered  the  opinion  of  the  Court. 

This  was  an  action  on  three  promissory  notes  of  hand,  on  two 
of  which  the  defendants  are  sued  as  executors  of  an  indorser,  and 
they  object  to  the  plaintiffs'  recovery  on  these  notes,  on  the  ground 
that  no  demand  has  been  made  on  the  makers  and  no  diligence 
used  to  collect  the  debts  of  them.  These  notes,  however,  were 
made  payable  at  the  Phoenix  Bank,  and  were  the  property  of  the 
bank.  No  demand  was  necessary  except  at  the  bank;  and 
although  there  is  no  express  proof  that  the  notes  were  there,  and 
some  officer  of  the  bank  in  attendance,  at  the  time  the  notes  fell 
due,  yet  this  must  be  presumed,  and  it  was  for  the  defendants  to 
show  that  the  makers  called  at  the  place  appointed,  for  the  purpose 
of  making  payment.  The  testator,  by  his  indorsements,  guaran- 
tied that  the  makers  would  respectively  be  at  the  bank  and  pay 
the  notes  according  to  their  tenor.  (Berkshire  Bank  v.  Jones  6 
Mass.  R.  525). 

In  the  next  place  it  is  objected,  that  the  bank  had  no  author- 
ity to  indorse  the  notes  in  question,  as  the  indorsement  was  made 
after  the  charter  of  the  bank  had  expired  by  its  own  limitation ; 
and  that  the  bank  had  no  power  to  sell  or  indorse  their  notes  by 
virtue  of  St.  1819,  c.  43.  That  statute  provides,  that  all  bodies 
corporate  and  politic,  whose  powers  would  expire,  either  by 
express  limitation  in  their  charters  of  incorporation,  or  otherwise, 
should  be  continued  bodies  corporate  and  politic,  for  the  term  of 
three  years  from  and  after  the  day  on  which  their  powers  would 
expire,  for  the  purpose  of  prosecuting  and  defending  all  suits, 
and  of  enabling  them  to  settle  and  close  their  concerns  and  divide 
their  capital  stock;  but  not  for  the  purpose  of  continuing  their 
business. 

This  is  a  just  and  wise  remedial  law,  and  ought  to  be  liberally 
expounded.  By  the  principles  of  the  common  law,  upon  the  civil 
death  of  a  corporation,  all  its  real  estate  remaining  unsold,  reverts 
back  to  the  original  grantor  and  his  heirs ;  and  the  debts  due  to 
and  from  the  corporation  are  extinguished.  The  object  of  the 
statute  was  effectually  to  guard  against  the  inequitable  conse- 
quences of  this  rule  of  the  common  law.  Now  it  appears,  that 
within  three  years  after  the  expiration  of  the  charter  of  the  bank 
these  notes  were  indorsed,  and  we  think  the  bank  had  competent 
authority,  by  virtue  of  the  statute,  to  make  the  Indorsements.    The 


310  Indorsement  by  Cashier  of  Bank 

notes  not  having  been  collected,  the  bank  had  clearly  a  right  to 
sell  them,  or  to  dispose  of  them  in  any  other  reasonable  and  proper 
manner,  so  as  to  wind  up  their  concerns.  The  bank  clearly  had 
a  right  to  transfer  the  notes  to  the  plaintiffs,  and  it  is  no  concern 
of  the  defendants  how  the  money,  when  collected,  is  to  be  disposed 
of. 

As  to  the  objection,  that  the  indorsement  is  not  made  in  the 
name  of  the  corporation,  we  think  the  indorsement  by  the  cashier 
in  his  official  capacity  sufficiently  shows,  that  the  indorsement  was 
made  in  behalf  of  the  bank,  and  if  mat  is  not  sufficiently  certain, 
thTpTaintiffs  have  the  right  now  to  prefix  the  name  of  corporation. 

The  last  objection  is,  that  the  indorsement  on  one  of  the  notes 
was  not  made  on  the  back  of  the  original  note,  and  therefore 
amounted  only  to  an  equitable  transfer.  The  indorsement  was 
made  on  a  paper  attached  to  the  back  of  the  note  by  a  wafer,  and 
it  had  been  before  thus  attached  for  the  purpose  of  entering 
thereon  indorsements  of  payments,  the  back  of  the  original  note 
having  been  before  covered  with  indorsements;  and  several  pay- 
ments had  been  indorsed  on  the  attached  paper,  before  the  note 
was  transferred  by  indorsement  to  the  plaintiff.  This  paper  thus 
attached  had  become  a  part  of  the  note,  and  no  good  reason  can 
be  given  why  an  indorsement  made  thereon  should  not  be  held  a 
valid  and  legal  transfer.  The  objection  is,  that  such  an  indorse- 
ment is  not  sanctioned  by  custom ;  but  we  think  it  is  supported  by 
the  reasons  on  which  the  custom  was  originally  founded.  Bills 
of  exchange  and  promissory  notes  were  indorsed  on  the  back  of 
the  bills  and  notes,  because  it  was  a  convenient  mode  of  making 
the  transfer,  and  in  order  that  the  evidence  thereof  might  accom- 
pany the  note.  Such  an  indorsement  as  this  will  rarely  happen, 
and  no  authority  to  support  it  could  reasonably  be  expected ;  but 
there  is  no  authority  against  it. 

If  a  person  write  his  name  on  a  blank  paper,  to  be  used  as  an 
indorsement  of  a  note  to  be  written  on  the  other  side,  and  it  be 
filled  up  as  intended,  the  party  would  be  held  liable  as  indorser  of 
the  note,  although  such  indorsements  are  infrequent,  and  are  not 
according  to  the  customary  form  of  making  a  transfer ;  but  they 
have  been  held  to  be  within  the  reason  of  the  custom,  and  are 
supported  by  principle.  (Bayley  on  Bills,  92;  Violet t  v.  Patton, 
5  Cranch,  142). 

So  in  the  present  case,  as  there  is  no  authority  against  the 
validity  of  the  indorsement,  we  think  we  shall  violate  no  principle 
in  holding  it  to  be  a  legal  transfer  of  the  note. 

Judgment  for  the  plaintiffs. 


Osgood's  Administrators  v.  Artt  311 

continuation  of  negotiable  character  of  instrument.    §  49. 
Leavitt  v.  Putnam..   (See  page  97.) 


TRANSFER  OF  INSTRUMENT  WITHOUT  INDORSEMENT.         §  51. 

Osgood's  Adm'rs  v.  Artt  (1883),  ij  Fed.  575. 

At  Law. 

W.  H.  Swift,  for  plaintiffs. 

Edsall,  Haivley  &  Edsall,  for  defendant. 

Harlan,  Justice.  On  the  fourteenth  day  of  May,  1856,  the 
defendant,  Artt,  executed  and  delivered  to  the  Racine  &  Missis- 
sippi Railroad  Company  his  note,  whereby,  for  value  received,  he 
promised  to  pay  to  that  company  or  order,  at  the  expiration  of  five 
years  from  May  10,  1856,  the  sum  of  $2,500,  together  with  interest 
at  the  rate  of  10  per  cent  per  annum,  payable  annually  on  the 
tenth  day  of  May  of  each  year, — principal  and  interest  payable  at 
the  office  of  the  company  in  the  city  of  Racine,  Wisconsin.  At 
the  same  time,  Artt,  to  secure  the  payment  of  the  note,  executed 
to  the  company  his  mortgage  upon  certain  real  estate  in  Carroll 
county,in  this  state.  Subsequently,  the  company  made  its  bond, 
under  date  of  June  10,  1856,  acknowledging  its  indebtedness  to 
and  promising  to  pay  Charles  Osgood,  or  bearer,  $2,500  on  the 
tenth  of  May,  1861,  at  its  office  in  the  city  of  New  York,  together 
with  interest  from  and  after  the  tenth  day  of  May,  at  the  rate  of 
10  per  cent  per  annum,  payable  semi-annually  on  each  tenth  day 
of  November  and  May,  upon  the  presentation  and  surrender  of 
the  interest  coupons  at  the  said  office.  That  bond  contained  these 
clauses : 

"To  the  payment  whereof  the  said  company  hereby  bind 
themselves  firmly  by  these  presents ;  and,  for  the  better  security 
of  such  payments  being  made  to  the  holder  thereof,  the  said  com- 
pany have  assigned  and  transferred,  and  by  these  presents  do 
assign  and  transfer,  to  the  said  holder  of  this  bond  a  certain  note 
for  the  sum  of  $2,500,  executed  by  Robert  Artt,  of  Carroll  county, 
together  with  a  mortgage  given  collateral  to  and  for  the  purpose 
of  securing  the  payment  of  the  same,  dated  on  the  fourteenth  day 
of  May,  1856,  payable  in  five  years  from  the  tenth  day  of 
May,  1856,  with  interest  at  the  rate  of  10  per  cent  per  annum, 
which  said  note  and  mortgage  are  hereto  appended,  and  arc  trans- 


312        Transfer  of  Instrument  Without  Indorsement 

ferable  in  connection  zvith  this  bond,  and  not  otherwise,  to  any 
parties  or  purchasers  whomsoever.  And  the  said  company  do 
hereby  authorize  and  empower  the  holder  of  this  bond  at  any  time, 
in  case  said  company  shall  fail  to  perform  any  of  the  foregoing 
stipulations  by  neglecting  to  pay  either  principal  or  interest  on 
this  bond  when  the  same  shall  become  due,  to  proceed  and  fore- 
close the  said  mortgage,  or  take  such  other  legal  remedy  on  said 
note  and  mortgage  against  said  mortgagor,  or  against  this  com- 
pany on  this  present  bond,  or  on  both,  as  shall  seem  proper  and 
expedient  to  said  holder  hereof." 

Some  time  in  the  summer  of  1857  the  railroad  company  sold 
the  bond,  delivering  therewith  the  note  and  mortgages  to  plaintiffs' 
intestate, — the  bond,  note,  and  mortgage  being  attached  firmly 
together  with  eyelets  in  the  order  in  which  they  are  named,  the 
bond  on  the  top,  next  the  note,  and  then  the  mortgage.  The  bond, 
note,  and  mortgage  each  bears  the  number  1,964  written  thereon 
in  ink.  At  the  time  of  such  purchase  and  delivery  Osgood  had  no 
notice  of  any  defense  to  the  note,  nor  of  any  of  the  matters  alleged 
in  defendant's  third  plea.  That  plea  states  facts  which  are  con- 
ceded to  show  a  good  defense  as  between  Artt  and  the  railroad 
company,  viz.,  an  entire  failure  of  consideration,  and  also  fraud, 
upon  the  part  of  the  company,  in  procuring  the  execution  of  the 
note  and  mortgage.  The  note,  bond,  and  mortgage,  after  their 
delivery  to  deceased,  remained  attached  in  the  manner  just  stated. 
Upon  the  back  of  the  note  are  the  words  "Racine  &  Mississippi 
Railroad  Company,  by  H.  S.  Durand,  President,"  which  is  the 
indorsement  of  the  railroad  company,  placed  thereon  by  its  author- 
ity. It  had  not,  however,  been  placed  there  when  Osgood  pur- 
chased and  received  the  note,  bond,  and  mortgage,  but  was  made 
at  some  date  subsequent  to  June,  1859.  Before  the  indorsement 
was,  in  fact,  made  on  the  note,  but  after  the  purchase  by  Osgood, 
he  had  notice  as  well  of  the  fraud  practiced  by  the  railroad  on 
Artt,  as  of  the  failure  of  consideration  in  the  note,  as  set  out 
in  the  defendant's  third  plea. 

These  facts  have  been  specially  found  by  a  jury,  and  the  sole 
question  for  determination  is  whether,  upon  this  finding,  the  plain- 
tiffs are  entitled  to  judgment.  The  only  issue  of  fact  made  on  the 
third  plea  is  whether  Osgood,  prior  to  the  indorsement  of  the  note, 
had  notice  of  the  alleged  fraud  and  failure  of  consideration. 

1.     It  is  a  settled  doctrine  of  the  law-merchant  that  the  bona 
_fof£j}urchaser  for  value  of  negotiable  paper,  payable  to  order,  if 
it  be  indorsed  by  the  payee,  takes  the  legal  title  unaffected  by  anvt 
equities  which  the  payor  may  have  as,  affainst  the  payee. 


Osgood's  Administrators  v.  Artt  313 

2.  But  it  is  equally  well  settled  that  the  purchascr,_  if  the 
paperbe  delivered  to  him  without  indorsement,  takes,  by  the  law- 
merchant,  only  the  rights  which  the  payee  has,  and  therefore  takes 
subject  to  any  defense  the  payor  may  rightfully  asserTTs  against 
the  payee.  The  purchaser  in  such  case  becomes  only  the  equitable 
owner  of  the  claim  or  debt  evidenced  by  the  negotiable  security, 
and,  in  the  absence  of  defense  by  the  payor,  may  demand  and 
receive  the  amount  due,  and,  if  not  paid,  sue  for  its  recovery,  in 
the  name  of  the  payee,  or  in  his  own  name,  when  so  authorized  by 
the  local  law. 

3.  As  a  general  rule  the  legal  .title  to  negotiable  paper,  pay- 
able to  order,  passes,  according  to  the  law-merchant,  only  by  the 
payee's  indorsement  on  the_security  itself.  The  only  established 
exception  to  this  rule  is  where  the  indorsement  is  made  on  a  piece 
of  paper,  so  attached  to  the  original  instrument  as,  in  effect,  to 
become  part  thereof,  or  be  incorporated  into  it.  This  addition  is 
called,  in  the  adjudged  cases  and  elementary  treatises,  an  allonge. 
That  device  had  its  origin  in  cases  where  the  back  of  the  instru- 
ment had  been  covered  with  indorsements,  or  writing,  leaving  no 
room  for  further  indorsements  thereon.  But,  perhaps,  an  indorse- 
ment upon  a  piece  of  paper,  attached  in  the  manner  indicated, 
would  now  be  deemed  sufficient  to  pass  the  legal  title,  although 
there  may  have  been,  in  fact,  room  for  it  on  the  original  instru- 
ment. 

4.  But  neither  the  general  doctrines  of  commercial  law,  no^ 
any  established  exception  thereto,  make  words  of  mere  assignment 
and  transfer  of  such  paper — contained  in  a  separate  instrument, 
executed  for  a  wholly  different  and  distinct  purpose — equiva- 
lent to  an  indorsement  within  the  rule,  which  admits  the  payor 
to  urge,  as  against  the  holder  of  an  unindorsed  negotiable 
security,  payable  to  order,  any  valid  defense  which  he  has 
against  the  original  payee. 

5.  The  transfer  of  the  note  in  suit,  by  wordsofassignment 
in  the  body  of  the  railroad  company's  bond,  djd  rioTTiaThe  judg- 
ment of  the  court,  amount  to  an  indorsement  of  the' note,  although 
TheTjond,  note,  and  mortgage  were  originally  fastened  together  by- 
"eyelets."    The  facts  set  out  in  the  third  plea,  and  sustained  by  the' 

special  finding,  constitute,  therefore,  a  complete  defense  to  the 
action,  unless,  as  contended  by  plaintiffs,  the  subsequent  indorse- 
ment, in  form,  by  the  railroad  company,  after  Osgood  was 
informed  of  Artt's  defense,  has  relation  back  to  the  time  when 
the  former,  without  notice  of  such  defense,  purchased  the  note 
for  value  then  paid.     If,  at  the  time  of  Osgood's  purchase,  it  had 


314        Transfer  of  Instrument  Without  Indorsement 

been  agreed  that  the  company  should  indorse  the  note,  but  the 
indorsement  was  omitted  by  accident  or  mistake  or  fraud  upon 
the  part  of  the  company,  a  different  question  would  have  been 
presented.  In  such  case,  the  company  might,  perhaps,  have  been 
compelled  to  make  an  indorsement  which  would  have  been  deemed 
effectual  as  of  the  time  when,  according  to  the  intention  of  the 
parties,  it  should  have  been  made.  But  no  such  case  is  presented 
by  the  special  finding.  It  is  entirely  consistent  with  the  facts 
found  that  the  indorsement  by  the  company  was  an  afterthought, 
induced  by  notice  of  Artt's  defense,  and  was  not  within  the  con- 
templation or  contract  of  the  parties  when  Osgood  purchased  the 
bond.  Moreover,  and  as  a  circumstance  significant  of  an  inten- 
tion to  restrict,  in  some  degree,  the  assignability  of  the  note  and 
mortgage,  it  is  expressly  stipulated,  in  the  company's  bond,  that 
they  are  transferable  in  connection  with  the  bond,  and  not  other- 
wise. 

I  am  of  opinion  that  the  facts  which  came  to  Osgood's  knowl- 
edge prior  to  the  indorsement,  and  which,  in  substance,  constitute 
the  defense  set  out  in  the  third  plea,  furnished  notice  that  the 
company  had,  by  reason  of  fraud  and  failure  of  consideration, 
lost  its  right  to  demand  payment  of  the  note  from  Artt.  J3y__the_ 
indorsement,  after  such  notice,  Osgood  could  not  acquire  any 
greater  rights  than  the  company  possessed.  He  did  not  become 
The  holder  of  the  note  by  indorsement,  as  required  by  the  law- 
merchant,  until  after  he  had  notice  that  the  company  could  not 
rightfully  pass  the  legal  title,  so  as  to  defeat  Artt's  defense. 

While  the  adjudged  cases  are  not  in  harmony  upon  some  of 
these  propositions,  the  conclusions  indicated  are,  in  the  opinion 
of  the  court,  consistent  with  sound  reason,  and  are  sustained  by 
the  great  weight  of  authority.  (Chief  Justice  Marshall,  in  Hop- 
kirk  v.  Page,  2  Brook.  41 ;  Sturges'  Sons  v.  Met.  Nat.  Bank,  49 
111.  231 ;  Melendy  v.  Keen,  89  111.  404;  Haskell  v.  Brown,  65  111. 
37;  Lancaster  Nat.  Bank  v.  Taylor,  100  Mass.  24;  Bacon  v.  Cohca, 
12  Smedes  &  M.  522;  Grand  Gidf  Bank  v.  Wood,  Id.  482;  Clark 
v.  Whitaker,  50  N.  H.  474 ;  Haskell  v.  Mitchell,  53  Me.  468 ; 
Franklin  v.  Twogood,  18  Iowa  515;  French  v.  Turner,  15  Ind. 
59;  Folger  v.  Chase,  18  Pick.  63;  Whistler  v.  Forstcr,  14  C.  B. 
246,  [108  E.  C.  L.  248]  ;  Harrop  v.  Fisher,  10  C.  B.  [N.  S.]  196; 
Gibson  v.  Minet,  1  H.  Bl.  s.  p.  606;  Story,  Notes,  §  120;  Story, 
Bills,  §201;  Chitty,  Bills,  [12th  Amer.  from  9th  Lond.]  252;  2 
Pars.  Notes  &  Bills,  1,  17,  18;  1  Daniel,  Neg.  Inst.  [3d  Ed.] 
§§  664a,  689a,  690,  741,  and  748a). 

The  facts  specially  found  do  not  authorize  a  judgment  for  the 
plaintiffs.  ft  k 


Goshen  National  Bank  v.   Bingham  et  al.  315 

The  Goshen  Nat' I  Bank  v.  Bingham  et  al  (1890),  118  N.  Y.  349. 
Bingham  et  al.  v.  The  Goshen  Nat'l  Bank. 

Appeals  from  judgments  rendered  by  the  General  Term  of 
the  Supreme  Court  in  the  first  judicial  department,  entered  upon 
orders  made  March  31,  1887,  which  affirmed  a  judgment  in  the 
action  first  above  entitled  in  favor  of  defendants  and  a  judgment 
in  action  second  above  entitled  in  favor  of  plaintiffs,  both  of 
which  were  entered  upon  the  reports  of  a  referee. 

On  November  27,  1884,  Benjamin  D.  Brown  applied  to  the 

cashier  of  the  Goshen  National  Bank,  appellant,  at  Goshen,  N.  Y., 

to  cash  a  sight  draft  for  $17,000,  drawn  by  him  upon  the  firm  of 

William  Bingham  &  Co.,  of  New  York,  the  individual  members 

of  which  firm  are  the  respondents,  accompanied  by  a  quantity  of 

the  bonds  of  the  West  Point  Manufacturing  Company,  of  the  face 

value  of  $17,000.     Brown  represented  that  he  had  negotiated  a 

sale  of  these  bonds  at  their  face  value  with  William  Bingham  & 

Co. ;  that  they  had  directed  him  to  draw  upon  them  at  sight  for 

$17,000,  the  draft  to  be  accompanied  by  the  bonds,  and  that  the 

draft  would  be  paid  upon  presentation.     Such  representations 

were  absolutely  false.    The  bonds  had  no  market  value.     Brown 

was  a  bankrupt  and  had  no  funds  in  the  bank  except  such  as 

resulted  from  the  credit  given  him  upon  the  faith  of  the  draft 

on  Bingham  &  Co.,  accompanied  by  the  bonds.     The  cashier  of 

the  Goshen  National  Bank,  relying  upon  such  representations, 

cashed  the  draft  of  $17,000,  and  placed  the  proceeds  to  the  credit 

of  Brown  upon  the  books  of  the  bank.     He  gave  Brown  sight 

drafts  on  New  York  for  $12,000,  and  certified  a  check  drawn  by 

Brown  to  his  own  order,  dated  November  26,  1884,  for  $5,000. 

On  the  morning  of   November  twenty-eight,   Brown  called   at 

the  office  of  William  Bingham  &  Co.,  and  stated  that  he  wanted 

to  get  some  currency.     Mr.  Bingham  passed  the  check  to  the 

firm's  cashier  directing  him  to  give   Brown   currency   for  the 

amount.     The  cashier  gave  him  a  check  drawn  on  the  Corn 

Exchange  Bank  for  $5,000.    Brown  had  the  check  cashed  at  the 

Corn  Exchange  Bank.    He  also  had  the  New  York  drafts  cashed, 

amounting  to  $12,000,  which  he  had  obtained  from  the  Goshen 

National  Bank.     After  procuring  the  checks  and  drafts  to  be 

cashed,  he  fled  to  Canada,  where  he  remained  at  the  time  of  the 

trial  of  these  actions.    When  Bingham  &  Co.  took  from  Brown 

the  check  certified  by  the  Goshen   National   Bank  it   was  not 

indorsed. 

The  referee  found  in  the  action  second  entitled  that  "at  the 


316        Transfer  of  Instrument  Without  Indorsement 

time  of  the  transfer  of  the  said  certified  check  by  Brown  to  the 
plaintiffs,  it  was  intended  both  by  Brown  and  the  plaintiffs  that 
said  certified  check  should  be  indorsed  by  Brown,  and  it  was 
supposed  by  both  parties  that  he  had  so  indorsed  it,  and  if  the 
plaintiff  had  known  that  it  was  not  indorsed  they  would  not  have 
paid  the  consideration  therefor." 

He  found,  in  the  action  second  entitled,  "that  Brown  made 
no  statement  to  the  defendants,  or  either  of  them,  at  the  time  of 
the  trensfer  of  the  check  that  such  check  was  indorsed." 

And  "prior  to  the  commencement  of  the  action  of  replevin 
the  defendants  never  requested  Brown  to  indorse  said  check." 

While  Bingham  &  Co.  held  the  check  in  question  unindorsed, 
a  demand  for  its  return  to  the  bank,  accompanied  by  a  full  expla- 
nation of  the  circumstances  under  which  the  certification  was 
obtained,  was  made  upon  Bingham  &  Co.,  in  behalf  of  the  bank, 
and  upon  their  refusal  to  return  it,  an  action  to  recover  its  pos- 
session was  commenced  by  the  bank  against  Bingham  &  Co. 

That  action  is,  firstly,  above  entitled. 

Subsequently,  and  on  December  sixteenth,  Bingham  &  Co. 
obtained  from  Brown  a  power  of  atterney  to  indorse  the  check. 
Pursuant  thereto  the  check  was  indorsed  and  payment  thereafter 
demanded  of  the  bank. 

This  was  refused,  and  thereupon  the  action,  secondly,  above 
entitled,  was  commenced  by  Bingham  &  Co.,  to  recover  the 
amount  of  the  check. 

Henry  Bacon,  for  appellant. 
Joseph  F.  Mosher,  for  respondents. 

Parker,  J.  As  against  Brown,  to  whose  order  the  check 
was  payable,  the  bank  had  a  good  defense.  But  it  could  not 
defeat  a  recovery  by  a  bona  fide  holder  to  whom  the  check  had 
been  indorsed  for  value.  By  an  oversight  on  the  part  of  both 
Brown  and  Bingham  &  Co.  the  check  was  accepted  and  cashed 
without  the  indorsement  of  the  payee.  Before  the  authority  to, 
indorse  the  name  of  the  payee  upon  the  check  was  procured  and 
its  subsequent  indorsement  thereon,  Bingham  &  Co.  had  notice 
of  the  fraud  which  constituted  a  defense  for  the  bank  as  against 
Brown.     Can  the  recovery  had  be  sustained? 

It  is  too  well  settled  by  authority,  both  in  England  and  in 
this  country,  to  permit  of  questioning,  that  a  purchaser  of  a 
draft,  or  check,  who  obtains  title  without  an  indorsement  by  the 
payee,  holds  it  subject  to  all  equities  and  defenses  existing 
between  the  original  parties,  even  though  he  has  paid  full_con- 


Goshen  National  Bank  v.  Bingham  et  al.  317 

sideration,  without  notice  of  the  existence  of  such  equities  and 
defenses.  '(Harrop  v.  Fisher,  30  L.  J.  [C.  L.,  N.  S.]  283;  Wh ist- 
ler  v.  Forster,  14  C.  B.  [N.  S.]  246;  Savage  v.  King,  17  Me.  301 ; 
Clark  v.  Callison,  7  111.  263;  Haskell  v.  Mitchell,  53  Me.  468; 
Clark  v.  Whitaker,  50  N.  H.  474;  Calder  v.  Billington,  15  Me. 
398;  Lancaster  Nat.  Bank  v.  Taylor,  100  Mass.  18;  Gilbert  v. 
Sharp,  2  Lans.  412;  Hedges  v.  5>a/y,  9  Barb.  214-218;  Franklin 
Bank  v.  Raymond,  3  Wend.  69 ;  Raynor  v.  Hoagland,  7  J.  &  S. 
1 1 ;  M«//<?r  v.  Pondir,  55  N.  Y.  325 ;  Freund  v.  Importers  & 
Traders'  Bank,  76  id.  352;  7>ms*  Co.  v.  iVaf.  £ajz&,  101  U.  S. 
68;  Osgood  v.  ^/rtt,  17  Fed.  Rep.  575.) 

The  reasoning  on  which  this  doctrine  is  founded  may  be 
briefly  stated  as  follows:  The  general  rule  is  that  no  one  can 
transfer  a  better  title  than  he  possesses.  An  exception  arises  out 
of  the  rule  of  the  law-merchant,  as  to  negotiable  instruments. 
It  is  founded  on  the  commercial  policy  of  sustaining  the  credit 
of  commercial  paper.  Being  treated  as  currency  in  commercial 
transactions,  such  instruments  are  subject  to  the  same  rule  as 
money.  If  transferred  by  indorsement,  for  value,  in  good  faith 
and  before  maturity,  they  become  available  in  the  hands  of  the 
holder,  notwithstanding  the  existence  of  equities,  and  defenses, 
which  would  have  rendered  them  unavailable  in  the  hands  of  a 
prior  holder. 

This  rule  is  only  applicable  to  negotiable  instruments  which 
are  negotiated  according  to  the  law-merchant. 

When,  as  in  this  case,  such  an  instrument  is  transferred  but 
without  an  indorsement,  it  is  treated  as  a  chose  in  action  assigned 
to  the  purchaser.  The  assignee  acquires  all  the  title  of  the 
assignor  and  may  maintain  an  action  thereon  in  his  own  name. 
And  like  other  choses  in  action  it  is  subject  to  all  the  equities 
and  defenses  existing  in  favor  of  the  maker  or  acceptor  against 
the  previous  holder. 

Prior  to  the  indorsement  of  this  check,  therefore,  Bingham 
&  Co.  were  subject  to  the  defense  existing  in  favor  of  the  bank 
as  against  Brown,  the  payee. 

Evidence  of  an  intention  on  the  part  of  the  pavee  to  indorse 
does  not  aid  the  plaintiff.  It  is  the  act  of  indorsement,  not  the 
jntention,  which  negotiates  the  instrument,  and  it  cannot  be  said 
that  the  intent  constitutes  the  act. 

The  effect  of  the  indorsement  made  after  notice  to  Bingham 
&  Co.  of  the  bank's  defense  must  now  be  considered.  Did  it 
relate  back  to  the  time  of  the  transfer,  so  as  to  constitute  the 
plaintiffs  holders  by  indorsement  as  of  that  time? 


318        Transfer  of  Instrument  Without  Indorsement 

While  the  referee  finds  that  it  was  intended  both  by  Brown 
and  the  plaintiffs  that  the  check  should  be  indorsed,  and  it  was 
supposed  that  he  had  so  indorsed  it,  he  also  finds  that  Brown 
made  no  statement  to  the  effect  that  the  check  was  indorsed; 
neither  did  the  defendants  request  Brown  to  indorse  it.  There 
was,  therefore,  no  agreement  to  indorse.  Nothing  whatever  was 
said  upon  the  subject.  Before  Brown  did  agree  to  indorse  the 
plaintiffs  had  notice  of  the  bank's  defense.  Indeed,  it  had  com- 
menced an  action  to  recover  possession  of  the  check. 

It  would  seem,  therefore,  that  having  taken  title  by  assign- 
ment, for  such  was  the  legal  effect  of  the  transaction,  by  reason 
of  which  the  defense  of  the  bank  against  Brown  became  effectual 
as  a  defense  against  a  recovery  on  the  check  in  the  hands  of  the 
plaintiffs  as  well,  that  Brown,  and  Bingham  &  Co.,  could  not, 
by  any  subsequent  agreement  or  act,  so  change  the  legal  charac- 
ter of  the  transfer  as  to  affect  the  equities  and  rights  which  had 
accrued  to  the  bank.  That  the  subsequent  act  of  indorsement 
could  not  relate  back  so  as  to  destroy  the  intervening  rights  and 
remedies  of  a  third  party. 

This  position  is  supported  by  authority.  (Harrop  v.  Fisher; 
Whistler  v.  Forster;  Savage  v.  King;  Haskell  v.  Mitchell;  Clark 
v.  Whitaker;  Clark  v.  Callison;  Lancaster  Nat.  Bank  v.  Taylor; 
Gilbert  v.  Sharp,  cited,  supra.) 

Watkins  v.  Maule  (2  Jac.  &  Walk.  243)  and  Hughes  v.  Nel- 
son (29  N.  J.  Eq.  547)  are  cited  by  the  plaintiff  in  opposition  to 
the  view  we  have  expressed. 

In  Watkins  v.  Maule,  the  holder  of  a  note,  obtained  without 
indorsement,  collected  it  from  the  makers.  Subsequently  the  mak- 
ers complained  that  the  note  was  only  given  as  a  guarantee  to  the 
payee  who  had  become  bankrupt.  Thereupon  the  holder  refunded 
the  money  and  took  up  the  note  upon  the  express  agreement  that 
the  makers  would  pay  any  amount  which  the  holders  should  fail 
to  make  out  of  the  bankrupt  payee's  property.  The  makers  were 
held  liable  for  the  deficiency.  Hughes  v.  Nelson  did  not  involve 
the  precise  question  here  presented.  The  views  expressed,  how- 
ever, are  in  conflict  with  some  of  the  cases  cited  but  we  regard  it 
in  such  respect  as  against  the  weight  of  authority.  Freund  v. 
Importers  &  Traders'  Bank  (supra)  does  not  aid  the  plaintiff.  In 
that  case  it  was  held  "that  the  certification  by  the  bank  of  a  check 
in  the  hands  of  a  holder  who  had  purchased  it  for  value  from 
the  payee,  but  which  had  not  been  indorsed  by  him,  rendered  the 
bank  liable  to  such  holder  for  the  amount  thereof.  By  accepting 
the  check  the  bank  took,  as  it  had  a  right  to  do,  the  risk  of  the 


Goshen  National  Bank  v.  Bingham  et  al.  319 

title  which  the  holder  claimed  to  have  acquired  from  the  payee. 
In  such  case  the  bank  enters  into  contract  with  the  holder  by 
which  it  accepts  the  check  and  promises  to  pay  it  to  the  holder, 
notwithstanding  it  lacks  the  indorsement  provided  for,  and  it  was 
accordingly  held  that  it  was  liable  upon  such  acceptance  upon  the 
same  principles  that  control  the  liabilities  of  other  acceptors  of 
commercial  paper."  (Lynch  v.  First  National  Bank  of  Jersey 
City,  107  N.  Y.  183).     But  one  question  remains. 

The  learned  referee  held,  and  in  that  respect  he  was  sustained 
by  the  General  Term,  that  the  bank  by  its  certification  repre- 
sented to  every  one  that  Brown  had  on  deposit  with  it  $5,000; 
that  such  amount  had  been  set  apart  for  the  satisfaction  of  the 
check,  and  that  it  should  be  so  applied  whenever  the  check  should 
be  presented  for  payment,  and  that  Bingham  &  Co.,  having  acted 
upon  the  faith  of  these  representations  and  having  parted  with 
$5,000  on  the  strength  thereof,  the  bank  is  estopped  from  assert- 
ing its  defense. 

The  referee  omitted  an  important  feature  of  the  contract  of 
certification.  The  bank  did  certify  that  it  had  the  money ;  would 
retain  it  and  apply  it  in  payment,  provided  the  check  should  be 
indorsed  by  the  payee.  (Lynch  v.  First  National  Bank  of  Jersey 
~Ciiy,  supra). 

Ifjhe  check  had  been  transferred  to  plaintiffs  by  indorsement 
the  defendant  would  have  had  no  defense,  not  because  of  the  doc-^ 
trine  of  estoppel,  but  upon  principles  especially  applicable  to  nego- 
HaT5Ie~Tnstruments.  (Mechanics'  Bank  v.  N.  Y.  &  N.  H.  R.  R. 
nCT3"N.  Y.638). 

If  the  maker  or  acceptor  could  ever  be  held  to  be  estopped 
by  reason  of  representations  contained  in  a  negotiable  instrument 
he  certainly  could  not  be  in  the  absence  of  a  compliance  with  the 
provisions  upon  which  he  had  represented  that  his  liability  should 
depend. 

But  it  is  well  settled  that  the  maker  or  acceptor  of  a  negoti- 
able instrument  is  not  estopped  from  contesting  its  validity, 
because  of  representations  contained  in  the  instrument.  In  such 
cases  an  estoppel  can  only  be  founded  upon  some  separate  and 
distinct  writing  or  statement.  (Clark  v.  Session,  22  N.  Y.  312; 
Bush  v.  Lathrop,  22  id.  535;  Moore  v.  Metropolitan  Bank,  55  id. 
41  ;  Fairbanks  v.  Sargent,  104  id.  108;  Mechanics'  Bank  v.  N.  Y. 
&  N.  H.  R.  R.  Co.,  supra). 

The  views  expressed  especially  relate  to  the  action  of  Bing- 
ham &  Co.  against  the  bank  and  call  for  a  reversal  of  the  judg- 
ment. 


320  Transfer  by  Delivery 

We  are  of  the  opinion  that  the  action  brought  by  the  bank 
against  Bingham  &  Co.  to  recover  possession  of  the  check  cannot 
be  maintained,  and  in  that  case  the  judgment  should  be  affirmed. 

All  concur,  except  Haight  J.,  not  sitting. 

Judgments  accordingly. 


ir^ 


TRANSFER  BY  DELIVERY^  §  32. 

Bitser  v.  Wagar  (1890),  83  Mich.  223. 

Error  to  Oceana.     Dickerman,  J. 

Assumpsit.  Defendant  brings  error.  Affirmed.  The  facts 
are  stated  in  the  opinion. 

W.  E.  Ambler,  for  appellant. 
Fred  J.  Russell,  for  plaintiff. 

Long,  J.  This  action  was  brought  in  the  circuit  court  for 
Oceana  county,  upon  a  promissory  note  reading  as  follows : 

"$100.00.  Hart,  Mich.,  March  20,  1889. 

"Eight  months  after  date  I  promise  to  pay  to  the  order  of 
Marget  A.  Bitzer  (or  bearer)  one  hundred  dollors,  at  the  Oceana 
County  Savings  Bank,  value  received,  with  interest  at  the  rate  of 
6  per  cent.  "Bert  Spellman. 

"G.  A.  Wagar." 

On  the  trial  the  plaintiff  had  judgment.  Defendant  brings 
error  on  the  ground: 

2.  That  the  court  erred  in  admitting  in  evidence  the  note 
in  question,  for  the  reasons — 

a — That  the  note  is  payable  to  the  order  of  Marget  A.  Bitzer, 
and  has  never  been  indorsed  or  transferred  by  her  to  plaintiff,  and 
the  title  and  ownership  is  still  in  Marget  A.  Bitzer,  and  not  in 
plaintiff. 

b — That  said  note  is  not  competent  evidence,  for  the  reason 
that  plaintiff  has  not  shown  that  he  owns  or  has  property  in  said 
note. 

The  note  is  plainly  payable  to  bearer,  and  suit  could  be  main- 
tained thereon  in  the  name  oTany  holder. 

The  judgment  must  be  affirmed,  with  costs. 

The  other  justices  concurred.  . 

Day  v.  Longhurst.     (See  page  268.) 


Whitehead  v.  Walker  321 

Section  VII — Contract  of  Secondary  Parties. 

CONTRACT  OF  THE  DRAWER.  §  63. 

Whitehead  v.  Walker  (1842),  9  M.  &  W.  505. 

Assumpsit  by  the  endorsee  against  the  endorser  of  a  foreign 
bill  of  exchange.  The  declaration  stated,  that  heretofore,  to  wit, 
on  the  8th  of  August,  1834,  and  before  the  bankruptcy  of  Ben- 
bow,  in  parts  beyond  the  seas,  certain  persons  made  their  bill  of 
exchange  in  writing  directed  to  Messrs.  Grayhurst  and  Company, 
and  thereby  requested  them  to  pay  to  the  defendant,  ninety  days 
after  sight,  721/.  os.  3c?.  value  received:  that  the  defendant  en- 
dorsed the  said  bill  to  W.  Swainson,  who  endorsed  it  to  Willis  & 
Co.,  who  endorsed  it  to  Benbow ;  and  that  the  said  Grayhurst  & 
Co.  had  sight  of  the  said  bill,  but  had  not  paid  the  same.  To  this 
declaration  there  were  various  pleas,  the  8th  of  which  was  as 
follows : 

8th. — That  before  the  said  bill  became  due,  or  was  presented 
for  payment,  and  after  the  endorsement  to  Willis  &  Co.,  and 
before  the  endorsement  to  Benbow,  the  bill  was  presented  to 
Grayhurst  &  Co.  for  their  acceptance,  but  that  they  refused  to 
accept  the  same,  and  the  bill  was  thereupon  protested  for  non- 
acceptance  ;  and  that  the  defendant  had  not  due  notice  of  the 
non-acceptance  of  the  bill,  or  of  its  having  been  so  protested ; 
and  that  Benbow,  as  well  as  Willis  &  Co.,  at  the  time  of  the  said 
endorsement  to  Benbow,  had  notice  that  the  bill  had  been  so  pre- 
sented for  acceptance,  and  refused  and  protested  for  non-accept- 
ance. 

Verification — 

To  the  8th  plea,  the  plaintiff  replied  de  injuria. 

The  judgment  of  the  court  was  pronounced  by 
Parke,  B.  The  question  raised  by  the  pleadings  in  this  case 
is,  whether,  if  the  endorsee  of  a  foreign  bill  of  exchange  has  pre- 
sented it  for  acceptance,  and  (acceptance  having  been  refused)  has 
duly  presented  it  and  given  notice  to  the  drawer,  ( for  the  defend^ 
ant,  the  endorser,  is  in  the  same  situation),  and  so  has  acquired 
a  right  of  action  against  him  by  reason  of  the  non-acceptance,  a 
new  right  of  action  afterwards  accrues  to  him  on  the  subsequent 
presentment  of  the  bill  for  payment,  and  non-payment  according 
to  its  tenor.     The  plaintiff's,  indeed,  are  not  the  endorsees  who 


322 


Contract  of  the  Drawer 


presented  the  bill,  but  they  are  averred  to  have  taken  the  bill  with 
notice  of  the  fact  of  presentment  and  dishonour,  and  therefore 
stand  in  the  same  situation,  and  are  not  to  be  considered  as  having 
a  title  as  innocent  endorsees.  (Dunn  v.  O'Kccfe,  5  M.  &  Selw. 
282).  The  practical  importance  of  the  point  in  the  present  case 
arises  from  the  delay  of  the  holder  in  bringing  his  action.  The 
non-acceptance  and  the  protest  thereon  occurred  in  September, 
1834.  The  bill,  according  to  its  tenor,  would  not  be  payable  till 
the  subsequent  month  of  December,  and  this  action  was  com- 
menced in  November,  1840;  so  that  if  a  right  of  action  accrued  in 
December,  1834,  the  Statute  of  Limitations  cannot  be  successfully 
pleaded ;  whereas,  if  there  was  no  right  of  action  accruing  subse- 
quently to  the  protest  for  non-acceptance  in  September,  1834,  the 
statute  is  a  bar. 

On  the  part  of  the  plaintiff  it  was  contended,  that  although 
he  undoubtedly  might  have  brought  an  action  in  the  month  of 
September,  1834,  founded  on  the  non-acceptance,  yet  it  was 
optional  with  him  to  do  so  or  not ;  that  he  might,  if  he  thought 
fit,  waive  that  action,  and  proceed  merely  on  the  ground  of  the 
subsequent  non-payment  in  December,  1834.  For  the  drawer  of  a 
bill,  it  was  contended,  enters  into  a  double  engagement  with  the 
payee,  and  through  him  with  the  successive  holders  of  the  bill, 
namely,  first,  that  the  drawee  shall  accept  the  bill  when  regularly 
presented  to  him  for  acceptance ;  and  secondly,  that  he  shall  pay 
the  bill  when  regularly  presented  to  him  for  payment.  And  if  this 
be  a  correct  representation  of  the  engagement  entered  into  by  the 
drawer,  the  conclusion  seems  unavoidable,  that  whatever  right  of 
action  the  holder  might  have  acquired  by  the  non-acceptance,  he 
certainly  is  not  precluded  from  suing  in  respect  of  the  default  of 
payment.  But  we  are  of  opinion  that  the  contract  entered  into  by 
the  drawer  is  not  such  as  is  contended  for  by  the  plaintiff,  and 
that  he  in  fact  enters  into  one  contract  only ;  namely  in  the  case 
of  a  bill  made  payable  after  sight,  that  the  drawee  shall,  on  the 
biTTTjeing  presented  to  him  in  a  reasonable  time  from  the  date, 
accept  the  same,  and  having  so  accepted  it,  shall  pay  it  when  duly 
presented  for  payment  according  tojts  tenor ;  and  in  the  case  of  a_ 
bill  payable  after  date,  that  the  drawee  shall  accept  it  if  it  is  pre- 
sented to  him  before_lh£_lime  of  payment,  and  having  so  accepted 
it,  shall  pay  it  when  it  is  in  due  course  presented  for  payment ;  or 
if_it  is  not  presented  for  acceptance  at  all,  then  that  he  shall  pay 
it  when  duly  presented  for  payment. 

The  counsel  for  the  plaintiff,  in  support  of  his  view  of  the  law, 
relied  mainly  on  some  passages  which  he  cited  from  the  work  of 


Whithhead  v.  Walker  323 

Marius  on  Bills  of  Exchange,  some  of  which  are  adopted  in  Com- 
yns'  Digest,  tit.  "Merchant,"  (F.  8.)  &  (F.  9).  But  with  respect 
to  those  passages,  we  must  remark  that  the  work  of  Marius, 
though  undoubtedly  one  of  authority  in  its  way,  is  scarcely  to  be 
looked  at  as  a  legal  treatise  on  the  subject  of  bills  of  exchange.  It 
is,  as  its  title  imports,  a  work  giving  good  practical  advice  from 
a  practical  man  to  persons  receiving  and  negotiating  bills  of 
exchange.  The  author  was  a  public  notary,  who  lived  in  the  mid- 
dle of  the  seventeenth  century,  when  questions  of  mercantile  law 
were  much  less  perfectly  understood  than  they  are  now.  In  some 
of  his  notions  he  was  clearly  mistaken ;  as  for  instance,  he  con- 
siders the  holder  of  a  bill  of  exchange  to  be  in  all  cases  bound  to 
present  it  for  acceptance ;  and  it  seems  very  doubtful  whether  he 
supposed  the  effect  of  non-acceptance  to  be  anything  more  than  of 
rendering  it  incumbent  on  the  drawer  to  find  better  security  for 
the  satisfaction  of  the  holder.  It  is  not,  however,  absolutely  nec- 
essary to  decide  that  Marius  is  wrong,  for  he  nowhere  lays  down 
the  proposition  now  insisted  on,  namely,  that  after  a  protest  for 
non-acceptance,  a  second  right  of  action  accrues  to  the  holder  on 
the  non-payment.  He  speaks,  indeed,  of  the  holder  retaining  the 
bill  after  non-acceptance,  and  applying  for  payment,  and  suing  on 
default  of  payment ;  and  this,  as  a  matter  of  prudence,  may  prob- 
ably be  the  wisest  course  which  a  party  can  pursue.  In  spite  of 
the  non-acceptance,  the  drawer  still  may  pay  the  bill  when  at 
maturity,  and  the  holder  having  by  protest  and  notice  on  non- 
acceptance  put  himself  in  a  condition  to  sue  the  drawer,  may  very 
reasonably,  as  a  matter  of  prudence,  retain  the  bill,  and  endeavour 
to  obtain  payment  when  the  bill  is  at  maturity,  and  not  involve 
himself  in  litigation  until  there  has  been  a  failure  of  payment  as 
well  as  of  acceptance.  It  by  no  means,  however,  follows,  because 
this  is  spoken  of  as  being,  what  probably  it  still  is,  the  usual  course, 
that  any  second  right  of  action  arises  on  the  second  default.  For 
let  us  consider  what  is  the  nature  of  the  right  which  the  holder 
acquires  on  the  default  of  the  drawee  to  accept.  It  is  clear  (what- 
ever might  formerly  have  been  considered  on  the  subject)  that  by 
the  non-acceptance,  followed  by  the  protest  and  notice,  the  holder 
acquires  an  immediate  right  of  action  against  the  drawer — a  right 
of  action,  be  it  observed,  not  in  respect  of  any  special  damage  from 
the  non-acceptance,  but  a  right  of  action  on  the  bill,  i.  e.,  a  right 
of  action  to  recover  the  full  amount  of  the  bill.  The  effect  of  the 
refusal  to  accept  is,  (according  to  the  language  of  the  Court  of 
King's  Bench  in  Macarty  v.  Barrozv,  as  quoted  by  C.  J.  Wilmot, 
in  3  Wils.  16),  that  the  drawee  says  to  the  holder,  "I  will  not  pay 


324  Admissions  of  the  Drawer 

your  bill ;  you  must  go  back  to  the  drawer,  and  he  must  pay  you." 
The  holder  thus  acquires  by  the  non-acceptance  the  most  complete 
right  of  action  against  the  drawer  which  the  nature  of  the  case 
admits,  and  no  subsequent  act  or  omission  of  the  drawee  can  give 
him  a  more  extensive  right  against  the  drawer  than  hejhas  already 
acquired.  But  further,  on  failure  of  acceptance,  the  holder  is  hound 
to  give  immediate  notice  to  the  drawer,  and  if  he  omits  to  do  sor  he 
forfeits  all  right  of  action  against  him,  not  only  in  respect  of  the 
default  of  acceptance,  but  also  in  respect  of  the  subsequent  non- 
payment. Now  it  is  very  difficult  to  reconcile  this  doctrine  with 
the  notion  that  a  new  right  of  action  arises  from  the  non-payment ; 
for  if  that  were  so,  it  could  hardly  be  that  such  new  right  of  action 
could  be  destroyed  by  the  previous  neglect  to  give  notice  of  a 
matter  unconnected  with  that  out  of  which  the  second  right  of 
action  is  supposed  to  arise.  The  argument  of  the  plaintiffs  must 
be,  that  a  second  right  of  action  on  the  bill  arises  from  the  default 
of  payment  in  those  cases  only  in  which  the  holder  has  duly  given 
notice  of  the  non-acceptance,  i.  e.,  in  those  cases  only  in  which  the 
holder,  by  the  hypothesis,  must  have  already  acquired  a  right  of 
action  precisely  similar  to  and  co-extensive  with  that  which  is 
thus  supposed  to  vest  in  him  by  the  default  of  payment.  This 
seems  to  us  to  be  a  proposition  so  much  fraught  with  inconsis- 
tency, and  so  entirely  destitute  of  principle  and  authority,  that  we 
cannot  hold  it  to  be  law.  It  may  be  added,  that  if  the  law  were  as 
is  contended  for  the  plaintiffs,  this  inconvenience  would  follow, 
that  the  holder  of  a  bill  might  at  the  same  time  be  prosecuting  two 
actions  on  the  same  bill  against  the  same  party,  for  the  recovery 
of  precisely  the  same  sum. 

On  these  grounds  we  are  of  opinion  that  there  must  be  judg- 
ment for  the  defendant  on  the  demurrers  to  his  7th  and  9th  pleas. 
With  regard  to  the  8th  plea,  we  think  the  replication  de  injuria  is 
good,  and  judgment  on  that  plea  will  therefore  be  for  the  plain- 
tiffs. Judgment  accordingly. 

ADMISSIONS  OF  THE  DRAWER.  §  63. 

Kohn  ct  al.  v.  Watkins  (1882),  26  Kan.  691. 

Error  from  Douglas  District  Court. 

Action  brought  by  Solomon  H.  Kohn,  Morris  Kohn,  and  M. 
W.  Levy,  partners  as  Kohn  Brothers  &  Company,  against  Wat- 
kins,  upon  certain  drafts,  copies  of  which  are  as  follows: 


Kohn  et  al.  v.  Watkins  325 

No.  6639.  Office  of  J.  B.  Watkins  &  Co., 

Lawrence,  Kas.,  April  20,  1880. 
Pay  to  the  order  of  Geo.  W.  Cobb,  three  hundred  and  fifty- 
five  dollars.  J.  B.  Watkins  &  Co. 
$355.                                To  Merchants'  Bank,  Lawrence,  Kas. 
[Indorsements:]         Pay  to  the  order  of  R.  G.  McLain. 

Geo.  W.  Cobb. 
R.  G.  McLain. 

No.  6652.  Office  of  L  B.  Watkins  &  Co., 

Lawrence,  Kas.,  April  21,  1880. 

Pay  to  the  order  of  Michael  A.  Becker,  three  hundred  and 

fifty-five  dollars.  J.  B.  Watkins  &  Co. 

$355.  To  Merchants'  Bank,  Lawrence,  Kas. 

[Indorsements:]         Pay  to  the  order  of  R.  G.  McLain. 

Michael  A.  Becker. 
R.  G.  McLain. 

No.  6656.  Office  of  J.  B.  Watkins  &  Co., 

Lawrence,  Kas.,  April  21,  1880. 
Pay  to  the  order  of  Henry  Greer,  four  hundred  and  forty- 
four  dollars.  J.  B.  Watkins  &  Co. 
$444.                                To  Merchants'  Bank,  Lawrence,  Kas.. 
[Indorsements:]         Pay  to  the  order  of  R.  G.  McLain. 

Henry  Greer. 
R.  G.  McLain. 

Plaintiffs  alleged  in  their  petition  that  they  are  the  bona  fide 
holders  and  owners  of  said  drafts ;  that  they  paid  a  valuable  con- 
sideration therefor,  and  that  they  are  wholly  unpaid. 

The  further  facts  sufficiently  appear  from  the  opinion. 

Shtss  &  Hatton,  for  plaintiff's  in  error. 

R.  J.  Borgholthaus,  W.  J.  Patterson,  and  John  Hutchings,  for 
defendant  in  error. 

The  opinion  of  the  court  was  delivered  by 

Horton,  C.  J.  Upon  the  record  of  this  case  two  different 
questions  are  presented  for  our  decision.  The  first  is,  whether  a 
draft  or  bill  of  exchange  payable  to  a  real  person  known  at  the 
time  to  exist,  and  present  to  the  mind  of  the  drawer  when  he 
made  it,  as  the  party  to  whose  order  it  is  to  be  paid,  must  bear 
the  genuine  indorsement  of  such  payee  in  order  that  a  bona  fide 
indorsee  may  recover  thereon,  when  such  bill  has  been  drawn 
without  the  knowledge  or  consent  of  the  person  named  therein 
as  payee  through  the  false  representations  of  a  party  forging  the 


326  Admissions  of  the  Drawer 

indorsement,  who  obtains  it  from  the  drawer  by  fraud  and  without 
consideration?  Second,  if  a  drawer  be  induced  by  the  fraudu- 
lent representations  of  a  party  seeking  to  defraud  him,  to  make 
a  draft  or  bill  of  exchange  payable  to  a  fictitious  person,  not 
knowing  the  payee  to  be  fictitious  when  he  makes  the  bill  and 
intending  that  such  bill  shall  be  payable  to  a  real  person,  may 
the  bona  fide  holder  thereof  recover  on  it  against  a  drawer  as 
upon  a  bill  payable  to  a  fictitious  payee  ? 

The  first  inquiry  arises  upon  the  findings  of  the  trial  court 
in  relation  to  the  bill  payable  to  the  order  of  Michael  A.  Becker. 
It  appears  that  he  was  a  former  resident  of  Kingman  county,  and 
therefore  a  person  in  esse ;  that  his  name  was  forged  to  an  appli- 
cation transmitted  to  Watkins  by  R.  G.  McLain  without  the 
knowledge  or  consent  of  Becker,  asking  for  a  loan  of  money 
upon  premises  purporting  to  be  situated  in  Kingman  county.  It 
further  appears  that  the  defendant  accepted  the  application  trans- 
mitted by  McLain,  believing  it  to  be  genuine,  and  undertook  to 
loan  thereon  the  sum  of  $400,  less  commissions,  and  sent  McLain 
a  blank  note  and  mortgage  together  with  the  draft ;  that  McLain 
forged  the  name  of  Becker  upon  the  draft,  indorsed  thereon  his 
own  name,  and  negotiated  the  same,  and  received  from  the  plain- 
tiffs the  money  therefor.  The  plaintiffs  received  the  draft  in  the 
usual  course  of  trade,  and  paid  full  value.  It  is  argued  by  counsel 
for  plaintiffs,  that  as  to  this  draft  Becker  is  to  be  deemed  a 
fictitious  person,  because  he  had  no  knowledge  of  the  draft,  and  no 
interest  or  concern  in  it.  We  do  not  think  the  position  sound. 
The  statute  prescribes  that  to  make  a  bill  of  exchange  drawn  pay- 
able to  order  negotiable,  it  must  contain  the  indorsement  of  the 
person  therein  named  as  the  payee.  (Comp.  Laws  1879,  cn-  x4> 
§1).  And  we  suppose  that  counsel  for  defendant  will  concede, 
as  a  general  rule,  that  the  plaintiffs  could  not  recover  as  the 
indorsees  of  the  note  without  proving  the  indorsement  of  the 
payee.  Now  while  the  authorities  hold  that  when  the  drawer  or 
maker  of  a  bill  of  exchange  knows  that  the  payee  is  a  fictitious 
person  at  the  time  he  makes  the  draft,  that  a  bona  fide  holder  may 
recover  on  it  against  him  as  upon  a  bill  payable  to  bearer ;  and, 
while  some  of  the  authorities  hold  that  it  will  be  no  defense 
against  a  bona  fide  holder  for  the  maker  or  drawer  to  set  up  that 
he  did  not  know  the  payee  to  be  fictitious,  yet  none  of  these 
authorities  sustain  the  doctrine  that  if  the  payee  be  a  real  person, 
and  such  person  was  present  to  the  mind  of  the  maker  or  drawer 
when  he  made  the  draft  as  the  party  to  whose  order  it  is  to  be 
paid,  a  recovery  can  be  had  thereon  without  the  genuine  indorse- 


Kohn  ETAL.  v.   Watkins  327 

merit  of  the  payee  upon  the  mere  indorsement  of  the  party  who 
induced  the  drawer  to  make  the  bill  by  fraudulent  representations. 
Nor  can  such  bill  be  considered  as  one  running  to  a  fictitious 
payee,  and  as  if  drawn  payable  to  bearer.  If  the  principle  con- 
tended for  by  counsel  be  adopted,  it  would  be  wholly  immaterial 
whether  the  indorsement  is  genuine  or  not,  so  far  as  to  give  to 
the  instrument  the  character  of  negotiable  paper  when  the  indorser 
himself  is  not  actually  sued.  For  it  would  always  be  open  to 
the  dilemma,  if  he  is  a  party,  it  is  a  genuine  indorsement ;  if  he 
is  not,  he  is  a  fictitious  payee  and  no  indorsement  is  necessary. 
(Dana  v.  Underwood,  19  Pick.  99;  Rogers  v.  Ware,  2  Neb.  29). 
In  our  opinion,  the  indorsement  on  the  draft  to  Becker  is  a  clear 
forgery,  and  the  holders,  however  innocent,  cannot  recover  from 
the  drawer. 

The  second  inquiry  presents  more  difficulty.  No  such  per- 
sons as  Henry  Greer  or  Geo.  W.  Cobb,  the  payees  mentioned  in 
two  of  the  drafts,  resided  in  Kingman  county,  or  owned  land  as 
purported  by  the  applications  transmitted  by  McLain.  These 
payees  are  fictitious.  The  finding  upon  this  matter  is,  that  these 
applications  (for  loans)  are  wholly  false  and  fraudulent,  and  were 
manufactured  by  McLain  with  the  design  and  for  purpose  of 
obtaining  money  thereon  fraudulently.  In  the  draft  to  Becker,  a 
real  person  was  inserted  as  payee  at  the  instance  of  McLain ;  but 
in  the  drafts  to  Greer  and  Cobb,  fictitious  names  were  transmitted 
by  McLain,  and  such  names  adopted  by  the  drawer  from  the 
applications  so  received  by  him  from  McLain;  and  these  drafts, 
therefore,  are  not  payable  to  persons  in  esse..  Although  the 
defendant  made  the  bills  in  ignorance  of  the  fact  that  these  parties 
named  as  payees  had  no  existence,  yet,  taking  all  the  circum- 
stances of  the  transaction  together,  we  think  the  drafts  to  Greer 
and  Cobb  are  controlled  by  the  line  of  decisions  respecting  bills 
and  notes  made  payable  to  fictitious  payees.  Daniel  on  Negotiable 
Instruments,  §  139,  says  : 

"In  the  case  of  a  note  payable  to  a  fictitious  person,  it  appears 
to  be  well  settled  that  any  bona  fide  holder  may  recover  on  it 
against  the  maker  as  upon  a  note  payable  to  bearer.  It  will  be 
no  defense  against  such  bona  fide  holder  for  the  maker  to  set  up 
that  he  did  not  know  the  payee  to  be  fictitious.  By  making  it 
payable  to  such  person  he  avers  his  existence,  and  he  is  estopped, 
as  against  the  holder  ignorant  of  the  contrary,  to  assert  the 
fiction." 

The  authority  to  sustain  the  rule  announced  is.  Lane  v. 
Krckle,  22  Iowa,  399.    This  authority,  so  far  as  the  actual  points 


328  Admissions  of  the  Drawer 

necessary  to  have  been  decided  in  that  case,  hardly  goes  so  far  as 
the  text  of  the  author,  because  the  note  in  that  action  was  made 
payable  to  bearer,  and  Dillon,  J.,  remarks  at  the  commencement 
of  the  opinion,  "That  this  fact  relieves  the  case  of  some  difficul- 
ties that  would  arise  were  it  payable  to  the  person  named,  or 
order."  Yet  that  learned  judge,  in  the  opinion,  presents  a  strong 
argument  in  support  of  the  proposition  stated  by  Daniel.  He 
says : 

"Upon  reason  and  principle  we  are  clear  that,  if  the  plaintiff, 
is  a  bona  fide  holder  for  value  and  without  notice,  the  fact  that  the 
note  is  made  payable  to  a  fictitious  person,  is  no  defense.  In  such 
caseTUTe  defendant  would  be  estopped,  as  against  the  plaintiff, 
from  setting  up  the  fact.  It  was  the  defendant  who  made  the 
nole.  By  making  it  payable,  as  he  did,  he  affirmed  the  existence 
of  such  a  person  as  the  payee  therein  named ;  and  he  should  not, 
against  a  person  ignorant  of  that  fact — one  who  may  reasonably 
be  presumed  to  have  acted  upon  the  faith  of  the  fact  thus  rep- 
resented— be  allowed  to  assert  the  contrary.  This  principle  of 
estoppel  in  pais  has  a  very  extended  and  just  application  in  the 
law  of  bills  and  notes,  the  doctrines  of  which  are  designed  to 
give  credit  and  circulation  to  negotiable  paper,  and  to  that  end 
throw  its  protection  around  the  honest  and  fair  holders  thereof. 
In  respect  to  such  a  holder,  the  maker  is  bound  to  know  that  the 
payee  is  a  real  person,  or  thereafter  hold  his  peace." 

In  the  case  of  Phillips  v.  Im  Tharn,  114  Eng.  C.  L.  694,  the 
defense  was  that  the  payee  was  a  fictitious  person,  in  ignorance 
of  which  fact  the  drawer  drew  the  bill.  It  was  decided  by  the 
court  that  since  the  drawer  would  be  estopped  to  set  up  the  fact 
that  the  payee  was  a  fictitious  name,  the  like  estoppel  would 
apply  to  an  acceptor  for  the  honor  of  the  bill.  In  Forbes  v.  Espy, 
21  Ohio  St.  474,  the  defendants  drew  upon  their  correspondents 
in  New  York  city  in  favor  of  Cochran,  Holmes  &  Co.,  and  by 
them  indorsed  to  Charles  Clark  (a  fictitious  name  assumed  by  one 
William  Mara),  and  in  that  name  indorsed  in  blank.  Forbes  & 
King  became  the  bona  fide  holders  of  the  draft.  It  was  presented, 
payment  refused  by  previous  directions  of  the  defendants,  pro- 
tested, and  due  notice  given  to  the  defendants.  Mr.  Justice  Mc- 
Ilvaine,  speaking  for  the  court,  says  that  the  defendants  were 
estopped  from  denying  plaintiffs'  title.  In  Chalmers'  late  Digest 
of  the  Laws  of  Bills  of  Exchange,  p.  144-  the  law  is  thus  stated : 
"B.,  at  the  request  of  X.,  makes  a  note  payable  to  C.'s  order.  C. 
is  a  fictitious  person,  but  B.  does  not  know  this.    X.  indorses  the 


Kohn  ET  AL.  v.   Watkins  329 

note  in  C.'s  name,  and  it  is  negotiated  to  D.,  a  bona  fide  holder  for 
value,  without  notice.  D.  can  sue  B.  Cooper  v.  Mayer  (1830), 
10  B.  &  C.  468;  Beeman  v.  Duck  (1843),  11  M.  &  W.  251; 
Schultz  v.  Astley  (1836),  2  Bing.  (N.  C.)  544." 

Passing  from  these  cases,  and  the  authorities  therein  cited, 
to  the  reasons  for  these  two  drafts  being  held  as  payable  to 
fictitious  payees,  we  add,  that  of  course  if  Watkins  had  not 
intended  that  such  payees  should  become  parties  to  the  transac- 
tion, or,  in  other  words,  had  knowledge  of  their  non-existence, 
there  could  be  no  question  as  to  error  in  the  judgment  of  the 
court  below.  (1  Parsons  on  Bills,  32,  560,  591,  592,  and  notes; 
2  Parsons  on  Bills,  40,  50;  Story  on  Bills,  §§56,  200;  4  E.  D. 
Smith,  83).  Ought  the  defendant,  who  made  the  bills  in  ignor- 
ance of  the  fact  that  the  persons  named  as  payees  are  fictitious, 
and  thus  parted  with  them  to  a  correspondent,  be  permitted  to 
aver  and  prove  this  as  against  the  innocent  holders  for  value? 
Either  plaintiffs  or  defendant  must  lose  in  this  transaction.  Wat- 
kins transmitted  these  drafts  to  his  correspondent  McLain,  and 
AlcLain  was  thereby  enabled  to  fraudulently  put  them  in  circu- 
lation. If  the  payees  had  been  known  to  defendant  as  fictitious, 
they  could  have  been  treated  by  McLain  as  well  as  the  plaintiffs, 
as  bills  payable  to  bearer.  Now  when  a  drawer  issues  a  bill  to  a 
fictitious  payee,  although  ignorant  of  that  fact  at  the  time,  and 
parts  with  the  possession  thereof,  ought  he  in  fairness  and  justice 
to  be  allowed  to  say  that  such  bill  is  void?  "Where  one  of  two 
innocent  parties  must  suffer  from  the  wrongful  or  tortious  acts 
of  a  third  party,  the  law  casts  the  burden  or  loss  upon  him  by 
whose  act,  omission  or  negligence  such  third  party  was  enabled 
to  commit  the  wrong  which  occasions  the  loss."  {Bank  v.  Rid. 
Co.,  20  Kas.  520).  While  the  finding  is,  that  the  defendant  was 
not  negligent  in  making  and  sending  these  drafts,  and  that  Mc- 
Lain was  not  the  agent  of  the  defendant  in  these  transactions,  it 
fully  appears  from  the  other  findings  that  the  drafts  were  sent 
to  McLain,  and  that  only  for  the  act  and  conduct  of  the  defendant, 
induced  by  the  wrongful  acts  of  McLain,  these  bills  would  not 
have  been  issued  and  sent  forth  as  commercial  paper.  To  some 
extent,  it  must  be  conceded,  defendant,  by  his  conduct  as  to  these 
bills,  placed  himself  in  the  hands  of  his  correspondent.  For 
instance,  if  Greer  and  Cobb  had  been  in  existence,  and  McLain 
had  passed  over  to  them  these  drafts  without  taking  back  any 
note  or  mortgage,  it  will  not  be  questioned  that  after  Greer  and 
Cobb  had  indorsed  and  negotiated  them  to  innocent  holders,  the 
defendant  could  not  set  up  the  fraud  of  these  parties  as  any 


330  Admissions  of  the  Drawer 

defense.  In  this  way,  if  such  parties  were  insolvent,  the  defend- 
ant would  have  been  also  absolutely  defrauded  of  his  money.  So 
we  think  that,  having  relied  upon  the  application  received  from 
McLain  for  the  names  of  the  payees  in  the  drafts  issued  by  him, 
and  two  of  the  payees  being  fictitious,  and  then  having  trans- 
mitted these  drafts  to  McLain,  and  thus  given  him  the  oppor- 
tunity to  put  them  in  circulation,  the  defendant  is  not  now  in  a 
condition  to  claim  that  the  drafts  are  void,  and  to  set  up  as  a 
defense  that  he  did  not  know  such  payees  to  be  fictitious.  He 
acted  upon  the  information  derived  from  McLain ;  he  is  bound  by 
McLain's  knowledge,  and  must  be  conclusively  presumed,  as 
against  the  innocent  holders  for  value,  to  have  known  that  these 
two  drafts  are  payable  to  fictitious  payees.  He  can  no  more  set 
up  the  fraud  of  McLain  as  to  these  two  drafts,  than  he  can  the 
fraud  of  Greer  and  Cobb,  had  there  been  such  persons  actually 
existing  in  Kingman  county,  and  they  had  obtained  these  drafts 
from  McLain  without  complying  with  the  request  of  the  drawer 
as  to  the  execution  of  the  notes  and  mortgages,  and  then  indorsed 
and  negotiated  them  to  innocent  holders. 

Counsel  for  defendant  refer  to  cases  making  the  indorsement 
by  McLain  upon  the  bills  at  the  time  he  delivered  them  to  plain- 
tiffs a  forgery.  Even  if  this  be  so,  we  do  not  think  it  prevents 
the  recovery  by  plaintiffs,  because  the  principle  of  estoppel  in  pais 
is  to  be  applied  to  the  defendant,  and  as  between  the  plaintiffs  and 
the  defendant  these  drafts  are  to  be  treated  as  if  drawn  payable  to 
bearer. 

The  case  will  be  remanded,  with  directions  for  the  court 
below  to  render,  judgment  upon  the  findings  of  fact 
for  plaintiffs  upon  the  drafts  payable  to  Greer  and 
Cobb,  and  judgment  for  the  defendant  upon  the  draft 
payable  to  Becker. 
All  the  justices  concurring. 


Phillips  v.  Im  Thurn  (1865),  18  C.  B.  (N.  S.)  694,  114  E.  C.  L. 

6p2. 

This  was  an  action  against  the  acceptor  for  honour  of  a  bill 
of  exchange. 

To  the  6th  plea, — that,  when  the  bill  of  exchange  in  the  first 
count  mentioned  was  made,  there  was  no  such  person  as  Carlos 
Raffo,  the  supposed  payee  named  in  the  said  bill,  but  the  said  name 
of  Carlos  Raffo  was  and  is  merely  fictitious,  whereof  the  defendant 


Grey  v.  Cooper  331 

at  the  time  of  his  acceptance  of  the  said  bill  had  no  notice  or 
knowledge, — the  plaintiffs  demurred ;  the  ground  of  demurrer 
stated  in  the  margin  being,  "that  the  defendant  is  by  his  said 
acceptance  estopped  from  saying  that  there  was  no  such  person  as 
Carlos  Raffo,  the  person  named  in  the  said  bill."    Joinder. 

Erle,  C.  J. — I  am  of  opinion  that  our  judgment  in  this  case 
should  be  for  the  plaintiff.  The  action  is  brought  by  the  holder 
of  a  bill  accepted  by  the  defendant  supra  protest  for  the  honour  of 
the  drawer,  acceptance  having  been  refused  by  the  drawee.  At 
the  maturity  of  the  bill  all  things  were  done  which  were  necessary 
to  fix  the  defendant  with  liability  as  an  acceptor  for  honour:  and 
the  defence  relied  on,  is,  that  the  bill  was  drawn  payable  to  a  fic- 
titious payee,  of  which  fact  the  defendant  had  no  notice  at  the 
time  of  his  acceptance  of  the  bill.  I  take  it  to  be  clear,  that,  ]f_ 
the  defendant  had  not  intervened,  and  the  action  had  been  brought 
by  the  holder  of  the  bill  against  the  drawer,  the  drawer  would 
have  been  by  law  compelled  to  admit  that  the  bill  was  a  valid  bill 
payable  to  bearer,  or,  in  other  words,  that  he  would  have  been 
estopped_from  denying  the  endorsement  nf  the  payee.  It  seems  to 
me  that  there  is  good  reason  for  saying  that  that  which  the  drawer 
would  be  estopped  from  denying  the  acceptor  for  honour  should 
also  be  estopped  from  denying.  I  think  he  is  equally  bound  to 
admit  that  the  bill  is  a  valid  bill.  The  acceptor  supra  protest  pay- 
ing the  bill  has  all  the  rights  against  the  drawer  that  an  ordinary 
holder  would  have.  I  find  no  authority  which  contravenes  this 
view ;  and  it  seems  to  me  that  it  receives  confirmation  from  the 
passages  cited  from  Story  on  Bills. 

Judgment  for  thejplqintiff. 


Grey  v.  Cooper  (1782),  j  Doug.  (K.  B.)  65. 

This  was  an  action  on  a  bill  of  exchange,  by  the  indorsee 
against  the  drawer.  The  declaration  stated,  that  the  defendant 
drew  the  bill  payable  to  one  Walker,  who  indorsed  it  to  Holbrook, 
who  indorsed  it  to  Shipden,  who  indorsed  it  to  the  plaintiff.  Pleas : 
1.  Non  assumpsit ;  2.  That  Walker,  at  the  time  of  the  indorsement 
by  him,  was  an  infant.    Demurrer  to  the  second  plea. 

Lord  Mansfield.  The  ground  on  which  the  drawer  is 
charged  is,  that  he  drew  a  bill  by  which  he  engaged  to  pay  accord- 
ing to  the  order  of  the  payee,  whoever  that  payee  might  be.     He 


332  Contract  of  the  General  Indorser 

might  give  the  infant  an  authority  which  the  law  itself  does  not 
give  him.  In  the  same  manner  he  may  give  a  bill  to  his  own  wife. 
The  drawer  says,  "let  anybody  trust  the  payee  on  my  credit."  The 
acts  of  an  infant  are  void,  or  not,  accordingly  as  they  are  for  his 
benefit.  The  privilege  of  an  infant  is  personal,  and  thereJs_no_ 
question  here  aslutween  the  infant  and  another  person.  The 
infant  sets  up  no  claim,  and  the  drawer  is  liable  to  pay. 

Judgment  for  the  plaintiff. 


CONTRACT  OF  THE  GENERAL  INDORSER.  §  68 — 2. 

)C  True  v.  Ballard  {1895),  45  Neb.  409. 

Error  from  the  district  court  of  Hitchcock  county.     Tried 
below  before  Welty,  J. 

/.  W.  Cole  and  Wm.  0.  Wool-man,  for  plaintiff  in  error. 
L.  H.  Blacklcdge,  contra. 

Ragan,  C.  The  material  facts  in  this  case  are :  On  the  9th 
of  December,  1889,  one  R.  W.  Boston  made  his  certain  promissory 
note  of  that  date  for  $265,  due  September  9,  1890.  This  note  was 
payable  to  the  order  of  and  delivered  to  one  S.  L.  True.  Before 
the  maturity  of  this  note  True  sold  and  delivered  it  to  W.  C.  Bul- 
lard  &  Co.,  and  indorsed  it  in  blank.  Before  the  note  matured 
Bullard  &  Co.  sold  it  to  a  bank,  and  it  not  being  paid  at  maturity, 
the  bank  sued  the  maker  of  the  note  and  True  as  an  indorser 
and  obtained  a  judgment  against  them.  True  then  brought  this 
suit  in  the  district  court  of  Hitchcock  county  against  Bullard  & 
Co.,  reciting  the  foregoing  facts,  and  alleging  that  at  the  time 
he  sold  the  note  to  Bullard  &  Co.  and  indorsed  it,  it  was  orally 
agreed  between  him  and  Bullard  &  Co.  that  the  sale  and  indorse- 
ment of  the  note  to  them  should  be  and  was  without  recourse  on 
him,  True ;  or,  in  other  words,  notwithstanding  that  he  indorsed 
the  note  in  blank,  he  was  not  to  be  or  become  liable  thereon  as  an 
indorser.  True  in  his  petition  did  not  aver  that  he  had  paid  the 
judgment  rendered  on  the  note  or  any  part  thereof.  The  district 
court  sustained  objections  to  the  evidence  offered  by  True  to  sup- 
port the  allegations  of  his  petition  on  the  ground  that  the  petition 
did  not  state  facts  sufficient  to  constitute  a  cause  for  action,  and 
directed  a  verdict  for  Bullard  &  Co.,  on  which  judgment  of  dis- 


True  v.  Bullakd  333 

missal  of  True's  action  was  rendered,  and  he  prosecutes  to  this 
court  a  petition  in  error. 

The  record  presents  two  questions :  May  the  payee  of  a 
promissory  note,  who  has  indorsed  his  name  on  the  back  thereof 
and  delivered  said  note  to  a  purchaser,  show  by  parol,  in  a  suit 
between  himself  and  said  purchaser,  that  by  so  indorsing-  and 
delivering  said  note,  that  the  liability  created  thereby  was  a 
different  liability  from  that  which  the  law  implies  against  a 
party  by  reason  of  such  an  indorsement  of  commercial  paper? 
Or,  applied  to  the  facts  in  the  case  at  bar,  is  it  competent  for  True 
to  prove  by  parol  that  at  the  time  he  indorsed  and  delivered  the 
note  in  question  to  Bullard  &  Co.  that  the  agreement  between  them 
was  that  he,  True,  should  not  be  liable  on  said  note  as  an  indorser 
by  reason  of  such  indorsement  and  delivery?  When  the  payee_ 
of  anote  indorses  his  name  thereon  in  blank  and  delivers  said 
note  to  a  purchaser  thereof,  the  law  in  effect  writes  over  the  sig- 
nature, of  said  indorser  an  agreement  on  his  part  that  if  the  holder 
of  said  note  shall  present  it  to  the  payor  thereof  at  its  maturity 
for  payment  and  it  be  dishonored,  and  that  if  such  holder  shall 
then  give  such  indorser  notice  in  a  reasonable  time  of  the  djshonor 
of  said  note,  that  he,  the  indorser,  will  pay  it :  and  on  the  part  of 
the  indorsee  of  said  note,  the  contract  created  by  the  law  is  that 
he  will  present  said  note  at  its  maturity  to  the  payor  thereof  for 
payment,  and  if  it  be  dishonored,  that  he  will  within  a  reasonable 
Jime  notify  the  indorser  of  said  note  of  such  dishonor.  It  must 
be  admitted  that  many  eminent  authorities  hold  that  parol  evidence 
is  not  admissible  to  contradict  or  vary  the  contract  which  the  law 
raises  by  reason  of  the  indorsement  in  blank  and  delivery  of  com- 
mercial paper,  either  on  the  part  of  the  holder  or  the  indorser ;  but 
in  Holmes  v.  First  Nat.  Bank  of  Lincoln,  38  Neb.,  326,  this  court 
held  that  between  the  original  parties  a  blank  indorsement  might 
be  modified  bv  parol :  that  the  entire  transaction  might  be  shown 
by  reason  of  which  the  indorsement  was  made,  and  that  parol 
evidence  was  admissible  for  the  purpose  of  proving  the  actual 
contract  made  between  the  indorser  and  indorsee  at  the  time  of 
the  blank  indorsement.  On  tne  authority  ot  that  case  we  hold 
that  it  was  competent  foi&True  to  show  by  parol  that  at  the  time 
he  indorsed  and  delivered  the  note  to  Bullard  &  Co.  that,  not- 
withstanding such  indorsement  and  delivery,  he,  True,  was  not 
to  be  held  liable  as  an  indorser  of  the  note ;  and  that  Bullard  & 
Co.  in  effect  purchased  the  note  without  recourse  on  True.  But 
we  must  not  be  understood  as  deciding  that  the  payee  of  a  prom- 
issory note,   who   indorses   it  in   blank   and   delivers   it   before 


334  Contract  of  the  General  Indorsek 

maturity,  could  set  up  the  defense  that  he  in  fact  sold  and  indorsed 
without  recourse,  as  against  a  subsequent  indorsee  of  said  note 
who  purchased  it  before  maturity,  in  the  usual  course  of  business, 
and  without  knowledge  of  the  contract  between  the  indorser  and 
first  indorsee. 

As  already  stated,  True  in  his  petition  did  not  aver  that  he 
had  paid  any  part  of  the  judgment  which  had  been  rendered 
against  him  on  said  note  in  favor  of  the  bank  to  whom  it  had  been 
sold  and  assigned  by  Bullard  &  Co.  So  far,  then,  as  the  petition 
shows,  True  has  not  been  damaged.  Under  no  view  of  the  case 
can  he  have  any  cause  of  action  against  Bullard  &  Co.  until  he 
shall  Have  paid  the  judgment  rendered  on  said  note  or  some  part 
thereof  (Churchill  v.  Moore,  15  Kan.,  255;  Lott  v.  Mitchell,  32 
Cal.,  24;  Jeffers  v.  Johnson,  21  N.  J.  Law,  73). 

But  what  was  the  contract  between  True  and  Bullard  &  Co.  ? 
The  petition  avers  that  Bullard  &  Co.  "expressly  agreed,  and  it 
was  understood  and  made  a  part  of  the  consideration  of  the  sale 
and  transfer  of  said  note,  that  said  defendants  Bullard  &  Co.  were 
to  accept  and  take  said  note  without  any  liability  or  recourse 
whatever  on  the  part  of  this  plaintiff  on  account  of  the  non- 
payment of  said  note  at  maturity."  The  most  that  can  be  said  for 
this  language  is  that  by  it  Bullard  &  Co.  agreed  that  so  far  as 
they  were  concerned  as  holders  of  the  note  they  would  not  look 
to  True  for  payment  thereof ;  that  he  was  not  to  be  liable  to  them 
as  an  indorser.  But  Bullard  &  Co.  did  not  agree,  so  far  as  the 
pleadings  show,  not  to  sell  and  indorse  this  note,  nor  did  they 
agree  that  if  they  did  sell  and  indorse  the  note  they  would  advise 
the  purchaser  of  the  contract  existing  between  them  and  True. 
The  mere  fact  that  Bullard  &  Co.  transferred  this  note  before 
maturity  to  the  bank,  and  that  as  against  the  bank  True  could 
not  set  up  as  a  defense  the  contract  under  which  he  indorsed  it 
to  Bullard  &  Co.,  does  not  invest  True  with  a  right  of  action 
against  Bullard  &  Co.  In  other  words,  Bullard  &  Co.  have  not 
violated  their  contract  with  True.  The  petition  does  not  state 
a  cause  of  action.    The  judgment  of  the  district  court  is  right  and 

is  Affirmed. 


^Lcr^    &~Z\ 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  335 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  {1891),  64  Vt.  151,  16  L.  R.  A. 

?95- 

Special  assumpsit  for  the  annual  interest  clue  on  five  prom- 
issory notes  endorsed  by  the  defendant.  Plea,  the  general  issue. 
Trial  by  court  at  the  April  term,  1890,  Lamoille  county,  Munson, 
J.,  presiding.    Judgment  for  the  defendant.    The  plaintiff  excepts. 

The  case  appears  in  the  opinion. 

P.  K.  deed,  for  the  plaintiff. 
Geo.  JVilkins,  for  the  defendant. 

The  opinion  of  the  court  was  delivered  by 

Tyler,  J.  It  appears  by  the  statement  of  facts  that  Geo.  Doo- 
little  and  Mrs.  E.  J.  Doolittle  promised  to  pay  the  defendant,  Wil- 
liam P.  Bailey,  or  order,  five  thousand  dollars,  as  their  five  promis- 
sory notes  should  respectively  become  due,  and  the  interest  thereon 
annually.  The  notes  are  dated  April  1,  1886,  are  for  $1,000  each, 
and  payable  16,  17,  18,  19  and  20  years  from  their  date. 

The  plaintiff,  as  the  indorsee  of  the  notes,  seeks  to  recover 
of  the  defendant,  as  indorser,  the  first  three  years'  interest  upon 
them  without  demand  of  the  makers  and  notice  to  the  defend- 
ant of  the  makers'  default  of  payment.  The  defendant's  counsel 
contends,  1st,  that  the  indorser  cannot  in  any  event  be  compelled 
to  pay  the  interest  as  it  annually  falls  due,  that  his  conditional 
liability  does  not  become  absolute  until  the  notes  respectively 
mature,  and  then  only  after  demand  and  notice ;  2d,  that  if  the 
interest  is  collectable  of  the  indorser  as  it  annually  accrues  it  is 
after  the  usual  measures  have  been  taken  to  make  him  chargeable. 

The  general  rule  of  law  relative  to  the  respective  liabilities  of 
the  maker  and  indorser  of  a  promissory  note  is  well  defined.  The 
promise  of  the  maker  is  absolute  to  pay  the  note  upon  presentment 
at  its  maturity.  The  promise  of  the  indorser  is  conditional  that  if, 
when  duly  presented,  it  is  not  paid  by  the  maker,  he.  the  indorser, 
will,  upon  due  notice  given  him  of  the  dishonor,  pay  the  same 
jo  the  indorsee  or  other  holder. 

It  seems  clear  that  the  indorser  is  not_liable  for  the  annrual_ 
payment  of  the  interest  without  performance  ofjhe_con3itions  bx 
tHFholden  IT  he  were  thus  liable  his  relation  to  the  note  would 
be  like  that  of  a  surety  or  a  joint  maker,  and  his  promise,  instead 
of  being  conditional,  would  be  absolute  as  to  the  payment  of  the 
interest.    This  is  contrary  to  the  general  statement  of  the  law  that 


336  Contract  of  the  General  Jndorser 

his  liability  is  conditional.  The  relation  of  principal  does  not 
exist  between  him  and  the  maker.  They  are  not  co-principals. 
Their  contracts  are  separate  and  they  must  be  sued  separately,  at 
common  law.  (Randolph  Com.  Paper,  s.  739).  The  maker  has 
received  the  money  of  the  indorser  and  in  consideration  thereof 
promises  to  repay  it  according  to  the  terms  of  the  note,  and  if  he 
fails  to  pay,  his  contract  is  broken  and  he  is  liable  for  the  breach. 
The  contract  of  the  indorser  is  a  new  one,  made  upon  a  new  con- 
sideration moving  from  the  indorsee  to  himself.  His  undertak- 
ing is  in  the  nature  of  a  guaranty  that  the  maker  will  pay  the 
principal  and  interest  according  to  the  terms  of  the  note.  His 
liability  is  fixed  upon  the  maker's  default  upon  demand,  and 
notice  to  him  of  such  default.  This  new  contract  cannot  be  con- 
strued as  an  absolute  one  to  pay  the  interest  without  default  of 
or  demand  upon  the  maker.  The  promise  cannot  be  absolute  as 
to  the  payment  of  interest  when  it  is  clearly  conditional  as  to  the 
payment  of  the  principal. 

It  is  held  that  though  the  annual  interest  upon  a  promissory 
note  may  be  collected  of  the  maker  as  it  falls  due,  it  is  not  separ- 
ated from  the  principal  so  that  the  recovery  of  it  is  barred  by  the 
statute  of  limitations  until  the  recovery  of  the  principal  is  thus 
barred.  (Grafton  Bank  v.  Doe  ct  at.,  19  Vt.  463).  The  holder 
of  a  note  with  interest  payable  annually  loses  no  rights  against 
the  parties  to  it,  whether  makers  or  indorsers,  by  neglecting  to 
demand  interest,  and  he  has  the  election  to  do  so,  or  wait  and 
collect  it  with  the  principal,  for  it  is  regarded  as  an  incident  of  the 
principal.  (National  Bank  of  North  America  v.  Kirby,  108  Mass. 
497).  But  it  is  so  far  an  independent  debt  that  he  may  maintain 
an  action  against  the  makers  for  it  as  it  annually  accrues,  or 
allow  it  to  accumulate  and  remain  as  a  part  of  the  debt  until  the 
*  note  matures.  JJJatUn  v.  Lyman,  16  Vt.  44).  In  the  latter  course 
I  the  makers  would  be  chargeable  with  interest  upon  each  year's 
'YV*>*  J  interest  from  the  time  it  was  due  until  final  payment.  ( 1  Aik. 
410;  Austin  v.  Imus,  23  Vt.  286).  It  was  said  by  the  court  in 
Talliaferro's  Ex'rs.  v.  King's  Admr.,  9  Dana  331,  (35  Am.  Dec. 
140)  :  "The  interest,  by  the  terms  of  the  covenant,  is  made  pay- 
able at  the  end  of  each  year,  and  is  as  much  then  demandable  as  if 
a  specific  sum  equal  to  the  amount  of  interest  had  been  promised ; 
and.  in  default  of  payment,  as  much  entitles  the  plaintiff  to 
demand  interest  upon  the  amount  so  due  and  unpaid.  The  fact 
that  the  amount  so  promised  to  be  paid  is  described  as  interest 
accruing  upon  a  larger  sum,  which  is  made  payable  at  a  future 
day,  cannot  the  less  entitle  the  plaintiff  to  demand  interest  upon 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  337 

the  amount,  in  default  of  payment,  as  a  just  remuneration  in  dam- 
ages for  the  detention  or  non-payment." 

It  is  true  that  at  the  maturity  of  the  notes  the  defendant  would 
be  liable,  as  indorser,  for  both  principal  and  interest,  upon  due 
demand  and  notice,  although  these  measures  had  not- been  taken 
to  make  him  chargeable  as  the  interest  fell  due  each  year.  Notice 
of  the  maker's  default  of  payment  of  interest  need  not  be  given 
annually  to  the  indorser  in  order  to  charge  him  with  liability  for 
interest  when  the  note  matures.  This  is  so  stated  by  the  court  in 
National  Bank  of  North  America  v.  Kirby,  supra.  In  Howe  v. 
Bradley,  19  Me.  31,  it  is  held  that  when  a  note  is  made  payable 
at  some  future  period,  with  interest  annually  till  its  maturity  and 
no  demand  is  made  for  the  annual  interest  as  it  becomes  due,  or 
if  made,  no  notice  thereof  is  given,  the  indorser,  if  duly  notified 
of  the  demand  and  non-payment  when  the  note  falls  due,  is  liable 
for  the  whole  amount  due,  both  principal  and  interest;  that  the 
obligation  imposed  by  the  law  upon  the  holder  is  only  to  demand 
payment  and  gives  the  required  notice  when  the  bill  or  note 
becomes  payable.  It  is  not  held  in  this  country  that  interest  is, 
subject  to  protest  and  notice,  according  to  the  law  merchant,  in 
order  to  charge  indorsers  with  it  when  the  note  matures.  The 
usual  consequence  of  omission  to  notify  the  indorser  of  the  maker's 
default,  namely,  the  release  of  the  indorser,  would  not  follow  the 
omission  to  give  him  annual  notice  of  such  default?  A  note  is  not 
dishonored  by  a  failure  of  the  maker  to  pay  interest.  First  Na- 
tional Bank  v.  County  Commissioners,  14  Minn.  JJ,  (100  Am. 
Dec.  196,  note). 

The  defendant's  counsel  argues  that  it  would  be  inconsistent 
to  hold  the  indorser  liable  for  interest,  which  is  a  mere  increment 
of  the  principal,  until  his  liability  is  established  to  pay  the  sum 
out  of  which  the  interest  springs  ;  that  there  may  be  defences  to  the 
note  at  its  maturity  which  will  release  the  maker  and  consequently 
the  indorser,  or  that  the  indorser  may  then  be  released  by  neglect 
of  demand  and  notice.  On  first  impression  it  might  seem  incon- 
sistent that  the  maker  should  be  compelled  to  pay  interest  before 
his  liability  has  been  fixed  to  pay  the  principal,  but  that  is  his 
contract.  It  is  also  argued  that  the  fact  that  the  interest,  when 
uncollected,  is  an  incident  of  the  debt  so  that  as  it  annually  falls 
due,  demand  and  notice  are  not  necessary  in  order  to  charge  either 
the  maker  or  the  indorser  with  liability  to  pay  it  when  the  note 
matures,  is  ground  for  holding  that  the  indorser  is  not  liable  for 
interest  until  he  is  made  liable  for  the  principal. 

The  question  is  whether  the  indorser,  by  the  act  of  indorse- 


338  Contract  of  the  General  Indorser 

ment,  promises  to  pay  anything  on  the  note  till  its  maturity,  at 
which  time  he  clearly  may  he  liable  for  both  principal  and  interest. 
The  note  bears  upon  its  face  an  absolute  promise  by  the  maker 
to  pay  the  principal  when  it  becomes  clue  and  the  interest  thereon 
annually.  His  promise  is  two-fold.  It  is  as  absolute  to  pay  the 
interest  at  the  end  of  each  year  as  to  pay  the  principal  at  the  end 
of  the  time  specified.  Now  what  is  the  nature  of  the  contract 
which  the  indorser  makes  with  the  indorsee?  His  contract  is  not 
in  writing,  like  that  of  the  maker,  but  his  name  upon  the  note  is 
evidence  that  he  has  received  value  for  it,  and  also  of  an  under- 
taking on  his  part  that  it  shall  be  paid  according  to  its  tenor. 
When  he  indorses  it  and  delivers  it  to  the  indorsee  he  directs  the 
payment  to  be  made  to  the  latter,  and  in  effect  represents  that 
the  maker  has  promised  to  pay  certain  sums  of  money  according 
to  the  terms  of  the  note,  that  is,  the  principal  at  maturity  and  the 
interest  annually ;  that  if  the  maker  fails  to  pay  on  demand,  he, 
the  indorser,  will  pay  on  due  notice.  His  conditional  promise  is 
concurrent  with  the  absolute  promise  of  the  maker.  His  liability 
to  pay  interest  and  principal,  as  each  respectively  falls  due,  arises 
from  his  contract.  It  is  his  contract  that  he  will  make  payment 
whenever  the  maker  is  in  default  and  he,  the  indorser,  is  duly  noti- 
fied thereof. 

It  is  true  that  interest  is  an  incident,  an  increment  of  the 
principal,  and  r/hat  the  holder  may  wait  for  it  until  his  note  matures 
and  then  collect  it  with  the  principal.  He  may,  however,  by  the 
contract,  collect  it  as  it  falls  due,  of  the  maker,  and  upon  the  tat- 
ter's default,  of  the  indorser. 

The  courts  of  England  have  never  recognized  the  American 
doctrine  that  interest  is  a  mere  incident,  an  outgrowth  of  the  prin- 
cipal, and  in  many  cases  follows  and  is  recoverable  as  such  without 
an  express  contract.  Until  37  Hen.  8,  c.  9,  it  was  unlawful  to 
demand  interest  even  upon  a  contract  to  pay  it.  Since  the  case  of 
DcHavilland  v.  Bowcrbank,  1  Campb.  50.  interest  has  been  allowed 
in  England  upon  express  contracts  therefor,  and  not  otherwise. 
Where  there  is  such  a  contract  interest  stands  like  the  principal 
in  respect  to  the  rights  and  liabilities  of  an  indorser.  (Sedg.  on 
Dam.,  383 ;  Scllcck  v.  French,  1  Conn.  32,  [6  Am.  Dec.  189, 
note]).  In  Jennings  v.  Napanee  Brush  Co.,  reported  in  Ca.  Law 
Jour.,  Vol.  20,  No.  19,  in  a  learned  opinion  by  McDougall,  J.,  it 
was  held  that  where  there  was  an  express  contract  to  pay  interest 
annually  or  semi-annually,  it  was  not  different  from  a  contract 
to  pay  an  installment  of  the  principal  itself,  and  that  notice  to  the 
indorser   of  the   maker's   default   was   necessary  to  charge  .  the 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  339 

indorser  with  it.  In  that  case  the  indorser  was  released  from  pay- 
ment of  the  first  two  half-yearly  instalments  of  interest  for  want 
of  demand  and  notice. 

While  we  adhere  to  the  doctrine  laid  down  in  Grafton  Bank 
v.  Doe,  et  al.,  supra,  that  interest  is  in  general  an  incident  of  the 
debt,  it  is  consistent  to  hold  that  where  the  indorser  is  himself  a 
party  to  the  original  contract  to  pay  interest  annually,  as  in  the 
case  at  bar,  by  his  indorsement  he  guarantees  the  performance  of 
that  contract.  Any  other  holding  would  make  the  indorser  liable 
for  only  a  part  of  the  maker's  contract. 

The  case  of  Codman  v.  The  Vt.  and  Ca.  Railroad  Co.,  16 
Blatch.  165,  has  been  brought  to  our  attention.  The  trustees  and 
managers  of  the  Vermont  Central  Railroad  Co.  and  the  Vt.  and 
Ca.  Railroad  Co.,  issued  notes  to  the  amount  of  $1,000,000  in 
sums  of  $1,000  each,  payable  to  the  defendant  company,  in  twenty 
years  from  their  date,  with  interest  semi-annually  on  presentation 
of  the  interest  coupons  made  payable  to  bearer  and  attached  to  the 
notes.  On  each  note  was  this  indorsement,  signed  by  the  treasurer 
of  the  defendant,  under  its  seal:  "For  value  received,  the  Ver- 
mont and  Canada  Railroad  Company  hereby  guarantee  the  pay- 
ment of  the  within  note,  principal  and  interest,  according  to  its 
tenor,  and  order  the  contents  thereof  to  be  paid  to  the  bearer." 
The  coupons  were  not  indorsed.  The  notes  were  put  on  the  mar- 
ket and  the  plaintiff  purchased  fifty  of  them,  and  subsequently, 
after  due  demand,  notice  and  protest,  brought  this  suit  to  recover 
the  amount  of  two  coupons  on  each  of  his  notes,  the  notes  them- 
selves not  having  matured.  Without  passing  upon  the  question 
whether  the  guaranty  was  negotiable  and  available  to  the  plaintiff, 
as  a  remote  holder,  Wheeler,  J.,  among  other  questions  that  arose 
in  the  case,  decided  that  the  indorsement  was  a  contract  of  indorse- 
ment running  to  the  bearer,  and  that  demand,  notice  and  protest 
fixed  the  the  liability  of  the  indorser  to  pay  the  coupons,  and  gave 
judgment  for  plaintiff  for  the  amount  of  the  coupons. 

The  Supreme  Court  of  the  United  States  has  repeatedly  held 
that  the  statute  of  limitations  begins  to  run  upon  interest  coupons 
payable  annually  or  semi-annually,  from  the  time  they  respectively 
mature,  although  they  remain  attached  to  the  bonds,  which  rep- 
resent the  principal  debt.  (Amy  v.  Dubuque,  98  U.  S.  470). 
Where  the  indorser  is  the  payee  of  the  note  there  would  seem  to 
be  no  difference  in  his  liability  in  respect  to  interest  whether  the 
maker's  promise  to  pay  it  is  contained  in  the  body  of  the  note  or  in 
interest  coupons  not  indorsed,  the  notes  to  which  they  are  attached 


840  Contract  of  the  General  Indorser 

being  indorsed,  and  the  coupons  being  mentioned  in  the  notes ; 
but  it  is  unnecessary  to  decide  that  question  here. 

Upon  the  facts  found  by  the  County  Court  this  action  can- 
not be  maintainedfor  the  reason  that  the  plaintiff  never  fixed  the 
defendant's  liability  to  pay  the  three  years'  accrued  interest.  It 
does  not  even  appear  that  the  makers  refused  payment  of  it  or 
that  they  were  requested  to  pay  it  before  this  suit  was  broughtj 
therefore  nothing  is  due  from  the  defendant  to  the  plaintiff. 


Ross,  Ch.J.,  dissents. 


Judgment  aMrmed.j^^^A 


Ross,  Ch.J.  I  concur  in  the  disposal  made  of  this  case ; 
and  in  most  of  the  grounds  and  reasoning  of  the  opinion.  But  I 
do  not  see  my  way  clear  to  concur  in  holding,  that  an  indorser 
upon  a  promissory  note,  payable  on  time,  with  the  interest 
annually,  can  be  made  chargeable  for  the  payment  of  the  inter- 
est, before  he  can  be,  and  is,  charged  with  the  payment  of  the 
principal.  By  placing  his  name  on  the  back  of  the  note  as  an 
indorser,  without  making  any  limitation  upon  his  indorsement,  he 
guarantees  its  payment,  upon  condition  that  the  indorsee,  when 
the  time  named  in  the  note  for  its  payment  arrives,  shall  present 
it  to  the  maker  and  demand  its  payment,  and,  if  the  maker  fails 
to  make  payment,  shall  seasonably  notify  him  of  such  failure. 
When  this  is  done,  the  indorser  promises  to  pay  whatever  of 
principal  and  interest,  is  then  due  upon  the  note.  This  condi- 
tion attaches  primarily  to  the  principal  of  the  note.  I  think  it 
attaches  to  the  interest  only  as  it  becomes  a  part  of  the  principal. 
It  seems  to  me  to  be  illogical,  and  pressing  the  indorsees  condi- 
tionaj_  undertaking  beyond  its  proper  scope  and  office,  to  hold 
that  he  can  have  his  liability  fixed  to  nay  for  the  usef  or  legal 
rental  of  the  principal,  before  his  liability  to  pay  the  principal 
is  fixed.  Interest  is  legal  damage,  fixed  usually  by  statute,  for 
the  detention  and  use  of  money.  As  soon  as  the  money  is  due 
and  payable,  the  law  implies  damage  for  its  detention  and  use. 
It  may  also  arise  from  the  contract,  for  the  detention  and  use  of 
the  principal  before  it  is  payable  by  the  terms  of  the  contract. 
When  stipulated  to  be  paid  annually,  it  may  be  collected  from 
the  maker  of  the  note  at  the  end  of  each  year,  because  such  is 
his  contract.  It  is  an  incident,  and  outgrowth  from  the  prin- 
cipal. The  promise  to  pay  it,  whether  implied  or  expressed,  is  a 
dependent  promise.  It  is  attached  to  and  arises  from  the  prom- 
ise to  pay  the  principal.  When  the  interest  is  stipulated  to  be 
paid  annually,  and  before  the  principle  is  payable,  the  maker 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  341 

when  sued  for  the  annual  interest,  because  his  promise  to  pay  it 
is  dependent  upon  his  promise  to  pay  the  interest,  may  set  up 
any  defence  to  the  suit  for  recovering  the  annual  interest,  which 
he  could  if  the  suit  were  for  the  recovery  of  the  principal  such 
as  fraud  in  the  inception  of  the  note ;  or  want,  or  failure  of  con- 
sideration, or  duress,  or  that  his  liability  for  the  principal  is  con- 
ditional, the  terms  of  which  have  not  been  complied  with.     If 
he  defeats  the  action,  it  will  estop  the  holder  from  recovering 
the  principal  when  due,  and  vice  versa.    In  I  Herman  on  Estop- 
pel and  Res  Judicata  231,  it  is  said,  "So  in  an  action  for  interest 
due  on  a  bond,  a  judgment  for  the  plaintiff  for  the  amount  of 
interest  claimed  will  be  conclusive  evidence  in  an  action  on  the 
bond,  and  estop  the  defendant  from  alleging  fraud,  for  the  reason 
that  it  was  a  defence  which  was  available  in  the  former  suit,  and 
the  presumption  is  that  it  was  so  used."    Citing  French  v.  How- 
ard, 14  Ind.  455;  Van  Dolsen  v.  Abendroth,  43  N.  Y.  Super.  Ct. 
470;  Preble  v.  Supervisors,  8  Bis.  358,  and  Edgell  v.  Sigerson, 
26  Mo.  583 ;  Cleveland  v.  Creviston,  93  Ind.  31,  (47  Am.  R.  367.) 
The  opinion  recognizes  this  intimate,  attached  and  depend- 
ent relation  of  the  promise  to  pay  the  interest  annually  to  the 
promise  to  pay  the  principal,  from  which  the  interest  springs.    It 
recognizes  that  the  statute  of  limitations  does  not  begin  to  run  on 
such  promise  to  pay  interest  annually  until  the  principal   falls 
due,  in  accordance  with  Grafton  Bank  v.  Doe,  et  al.,  19  Vt.  463. 
This  must  be  because,  until  severed  by  enforced  collection  or  pay- 
ment, interest  is  but  an  incident,  and  dependent  of  the  principal. 
It  also  recognizes  this  relation  in  holding  that  the  indorsee  may 
allow  the  interest  to  accumulate,  and  may  fix  the  indorsers  liabil- 
ity to  pay  it,  by  a  proper  demand,  default  and  notice  in  regard  to 
the  principal  when  that  falls  due.    That  is  because  liability  for  the 
principal  carries  its  dependencies.     I  concur  in  these  holdings. 
They  are  supported  by  the  decisions  cited  in  the  opinion.     But 
they  rest,  and,  in  my  judgment,  can  rest  only  on  the  basis  that 
the  promise  to  pay  the  interest  annually,  both  for  its  consideration 
and  enforcement  is  dependent  upon  the  promise  to  pay  the  prin- 
cipal.    The  opinion  also  holds  that  the  liability  incurred  by  the 
indorsement  is  conditional,  that  that  condition  attaches  to  the 
entire  note,  and  that  the  liability  of  the  indorser  must  be  fixed 
by  demand,  default  and  notice,  in  regard  to  the  interest  payable 
from  the  maker  yearly,  as  well  as  in  regard  to  the  principal.     It 
then  seems  to  conclude,  that,  because  the  indorsee  can  lawfully 
demand  and  collect  of  the  maker,  whose  promise  to  pay  the  prin- 
cipal is  absolute,  upon  his  dependent,  but  yet  absolute  promise  to 


342  Contract  of  the  General  Indorser 

pay  the  interest  annually,  he  can  by  proper  demand,  default  and 
notice,  collect  such  annual  interest  of  the  indorser  whose  promise 
and  liability  to  pay  the  principal  is  conditional,  and  cannot  as  yet 
be  made  absolute,  and  whose  promise  to  pay  the  annual  interest,  it 
has  already  held  is  dependent  upon  his  promise  to  pay  the  prin- 
cipal, and  therefore,  in  my  judgment,  takes  the  condition  attached 
to  his  liability  to  pay  the  principal.     It  is  at  this  point  that  1  fail 
to  follow  the  reasoning  of  my  associates.     Here  they  assume, — 
as  I  think — and  proceed  upon  the  basis,  that,  the  indorser's  implied 
promise  to  pay  the  annual  interest,  is  not  dependent,  but  inde- 
pendent, as  it  would  be,  if  it  were  an  instalment  of  the  principal. 
The  holdings  in  the  opinion,  that  the  indorser's  liability  for  the 
accrued  annual  interest  may  be  made  absolute  by  a  proper  demand, 
default  and  notice  in  regard  to  the  principal  when  it  falls  due, 
and  that  it  may  also  be  made  absolute  by  a  proper  demand,  default 
and  notice  yearly,  result  in  holding  that  the  maker's  promise  to 
pay  the  interest  annually  which  he  indorses,  is  both  dependent 
upon,  and  independent  of,  his  promise  to  pay  the  principal.     I 
do  not  think  that  it  has  this  double  and  inconsistent  character, 
but  only  the  former.    If  it  be  independent,  must  not  demand  and 
default  be  made,  and  notice  given  yearly,  or  the  indorser  become 
discharged?     And  if  demand  and  default  be  made,  and  notice 
given  annually,  must  not  the  statute  of  limitation  begin  to  run 
from  date  of  such  demand?     I  think  so.     The  result  of  giving 
this  double  character  to  the  promise  to  pay  interest  annually  will 
lead,  I  think,  to  some  difficult  legal  problems.     If  the  note  is  to 
mature  at  the  end  of  twenty  years,  and  the  payee  holds  it  and 
allows  the  interest  to  accumulate  for  ten  years,  and  then  having 
indorsed  it,  sells  it,  the  indorsee  must  wait  for  the  accumulated 
interest  until  the  note  falls  due,  because  the  maker's  promise  and 
the  indorser's  liability  in  regard  to  that  interest  is  dependent  upon 
the  indorser's  liability  for  the  maker's  promise  to  pay  the  prin- 
cipal, which  is  still  conditional,  and  for  that  reason  the  indorser's 
liability  to  pay  the  accumulated  interest  is  conditional,  and  will 
remain  so  until  it  is  made  absolute  for  the  principal ;  but  when 
the  eleventh  year's  annual  interest  falls  due,  the  indorsee  may  at 
once,  by  due  demand,  default  and  notice,  fix  the  indorser's  liabil- 
ity to  pay  that  year's  interest,  and  may  enforce  its  payment  by 
suit,  while  the  indorser's  liability  for  the  payment  of  the  principal 
from  which  the  year's  interest  springs,  cannot  for  years  be  made 
absolute  and  may  never  be.    After  the  indorser's  liability  for  the 
payment  of  the  year's  interest  has  thus  become  fixed  by  suit,  on 
what  legal  principles  governing  res  judicata,  could  the  indorser 


Mt.  Mansfield  Hotel  Co.  v.  Bailey  343 

defend,  in  a  suit  brought,  without  further  demand,  default  and 
notice,  at  the  maturity  of  the  note,  for  the  enforcement  of  the 
payment  of  the  principal  and  the  ten  years  accumulated  interest? 
The  only  decision  relied  upon  for  the  holding  of  my  asso- 
ciates is  from  6  Blatchford.  I  do  not  regard  that  in  point.  The 
guarantee  was  written  instead  of  implied.  The  relation  of  the 
indorser  to  the  obligation  was  exceptional,  it  having  been  given 
by  its  receivers  and  managers.  The  interest  was  expressed  in 
separate  coupons,  which,  for  some  purposes,  are  treated  as  inde- 
pendent obligations.  The  statute  of  limitations  runs  on  them 
generally  from  their  maturity.  (Amy  v.  Dubuque,  98  U.  S.  470, 
[25  L.  C.  P.  Co.  228] ).  In  this  respect  they  are  unlike  the  promise 
in  the  note  to  pay  the  interest  annually,  as  held  in  Grafton  Bank 
v.  Doe  ct  al,  19  Vt.  463.  I  do  not  think  that  the  indorsee  has 
the  election  to  fix  the  indorser's  liability  for,  and  recover  of  him 
annually  such  yearly  interest,  or  to  wait  and  fix  it  bv  proper 
demand,  default  and  notice  in  regard  to  the  principal.  I  think 
his  liability  can  only  become  absolute  for  the  payment  of  the 
incident  or  outgrowth  of  the  debt,  when  it  bernmps  ahsolntp  fnr 
the_payment  of  the  principal  from  which  that  incident  or  out- 
growth springs.  The  opinion  on  this  branch  of  the  case  is  made 
to  rest  upon  the  ground  that  the  indorser's  undertaking,  on  due 
demand  and  notice,  is  to  make  good  to  the  indorsee  any  failure 
of  the  maker  to  perform  the  contract,  and,  in  that  the  maker  has 
promised  to  pay  the  interest  at  the  end  of  each  year,  the  indorser 
has  likewise  so  undertaken  upon  proper  demand  and  notice.  But 
his  implied  contract  being  conditional  in  regard  to  the  payment 
of  the  principal,  I  think  is  conditional  also  to  any  incident  or  out- 
growth of  the  principal,  so  long  as  it  is  conditional  in  regard  to 
the  payment  of  the  principal,  and  that  he  only  becomes  absolutely 
bound  to  pay  the  interest  at  the  end  of  each  year,  when  he  becomes 
bound  absolutely  to  pay  the  principal.  When  so  bound  for  the 
payment  of  the  principal,  then  this  obligation  to  pay  the  interest 
at  the  end  of  each  year  attaches,  in  respect  both  to  the  interest 
then  accrued,  and  the  interest  which  may  thereafter  accrue.  I 
would  modify  the  opinion  in  the  particular  indicated. 


V*  *-*v 


344  Warranties  of  General  Indorser 

WARRANTIES  OF  GENERAL  INDORSER.  §  68. 

Ferguson  v.  Staples  (1889),  82  Me.  159,  ij  Am.  St.  Rep.  4/0. 

This  was  an  action  by  the  plaintiff,  as  surviving  partner  of 
the  firm,  Samuel  Otis  &  Co.,  to  recover  the  consideration  paid  by 
said  firm  to  the  defendant  for  three  overdue  town  orders,  which 
were  afterwards  adjudged  by  this  court  to  be  void.  The  orders 
were  indorsed  by  the  defendant. 

IV.  H.  Folgcr,  for  plaintiff. 
N.  H.  Hubbard,  for  defendant. 

Haskell,  J.  The  defendant,  upon  payment  of  $3,000  to  the 
municipal  officers  of  the  town  of  Stockton,  received  from  them 
three  town  orders  for  $1,000  each,  dated  November  17,  1877, 
payable  to  his  own  order,  with  interest  annually,  and  already 
accepted  by  the  treasurer  of  the  town. 

On  the  17th  of  January,  1879,  the  defendant  indorsed  one 
year's  interest  upon  each  of  the  orders  and  indorsed  and  delivered 
the  orders  to  the  plaintiff  for  value,  and  in  good  faith,  both 
parties  believing  them  to  be  legal  obligations  of  the  town. 

The  orders  have  been  held  by  this  court  as  issued  without 
authority  from  the  town,  and,  therefore,  of  no  binding  validity 
upon  it.  The  plaintiff  sues  in  assumpsit  to  recover  the  consid- 
eration that  he  paid  the  defendant  for  the  orders,  as  money  had 
and  received,  and  interest. 

Town  orders,  although  not  commercial  paper  to  the  extent 
that  transfer  to  an  innocent  holder  shuts  out  equitable  defenses, 
may  be  negotiable  in  form,  andjiecome  transferable  under  the 
same  rules  of  law  that  would  be  applicableTo  commercial  paper. 
(Parsons  v.  Monmouth,  70  Maine,  262). 

The  indorsement  of  a  note  is  a  new  contract.  The  indorser 
engages  that  the  note  shall  be  paid  according  to  its  tenor ;  that  is 
upon  proper  presentment,  demand  and  notice ;  he  engages  that 
it  is  genuine  and  the  legal  obligation  that  it  purports  to  be,  and 
that  he  has  title  to  it,  and  a  right  to  indorse  it.  (Sto.  Pr.  Notes, 
§135;  Dan.  Neg.  Inst.  §669;  Bank  v.  Fearing,  16  Pick.  533; 
Bank  v.  Caverly,  7  Gray,  217). 

All  engagements  of  the  indorser.  except  payment,  conditioned^ 
upon  demand  and  notice,  and  possibly  the  validity  of  the  note 
when  it  is  voidable  only,  are  absolute  warranties  and  not  depend- 
ent upon  any  condition  whatever.     If  the  note  transferred  by 


State  Bank  v.  Fearing  o45 

indorsement  be  a  forgery,  or  absolutely  void  for  any  other  reason, 
the  indorser  may  be  sued  for  the  orignal  consideration  paid  him, 
or  he  may  be  held  as  a  party  without  demand  and  notice]  (Dan. 
Neg.  Ins.  §§  669,  675,  1 1 13;  Par.  N.  &  B.  444;  Copp  v.  McDou- 
gall,  9  Mass.  1 ;  Burrill  v.  Smith,  7  Pick.  291). 

The  indorsement  and  transfer  by  the  payee,  of  a  dishonored 
promissory  note,  for  value,  must  create  all  the  engagements  on 
the  part  of  the  indorser  that  an  indorsement  of  the  note  before 
maturity  would  create,  except  as  to  demand  and  notice.  To 
charge  the  indorser  of  a  dishonored  note,  demand  and  notice  are 
required  within  a  reasonable  time  after  the  indorsement.  The 
indorsement  in  such  case  is  like  the  indorsement  of  the  demand 
note  of  the  maker  of  that  date,  or  the  drawing  of  a  bill  upon  the 
maker  of  the  note  payable  to  the  transferee.  (Greely  v.  Hunt,  21 
Maine,  455 ;  Hunt  v.  Wadleigh,  26  Maine,  271 ;  Sanborn  v. 
Southard,  25  Maine,  409;  Goodwin  v.  Davenport,  47  Maine,  112; 
2  Par.  N.  &  B.  13). 

The  plaintiff  has  elected  to  sue  for  the  consideration  that  he 
paid  the  defendant  for  the  worthless  orders.  The  plaintiff  has 
already  recovered  from  the  town  by  an  action  for  money  had  and 
received,  brought  in  the  defendant's  name,  the  part  of  the  money 
defendant  loaned  upon  the  order  that  went  to  the  use  of  the 
town.  This  sum  the  plaintiff  must  deduct  from  the  amount  that 
he  paid  the  defendant  for  the  orders  and  have  judgment  for  the 
balance  and  interest. 

Defendant  defaulted.     Damages  to  be  assessed  at  nisi 
prius. 
Peters,  C.J.,  Walton,  Virgin,  Emery  and  Foster,  JJ., 
concurred.  jj^    >^W— 

State  Bank  v.  Fearing  (1835),  16  Pick.  5jj,  28  Am.  Dec.  265. 

Assumpsit  on  a  promissory  note  for  the  sum  of  $2,000,  dated 
April  15,  1833,  payable  to  the  order  of  Thomas  Jackson,  junior, 
in  six  months,  made  by  Charles  Brown,  and  indorsed  with  the 
names  of  the  payee,  and  of  the  defendant. 

By  an  agreed  statement  of  facts,  it  appeared  that  the  signa- 
tures of  Brown  and  the  defendant  were  genuine,  but  that  the 
defendant  could  prove,  if  such  evidence  was  admissible,  that  the 
indorsement  of  the  name  of  the  payee  was  a  forgery;  that  the 
note  was  presented  by  Brown  to  the  plaintiffs  for  discount,  in  the 
usual  course  of  business,  and  discounted  by  them  for  him ;  that 


346  Irregular  or  Anomalous  Indorser 

at  the  time  of  such  discount,  the  plaintiffs  and  the  defendant  were 
ignorant  of  the  forgery;  and  that  due  notice  of  the  non-payment 
of  the  note  was  given  to  Brown,  Jackson  and  the  defendant. 

If  upon  this  statement  of  facts  the  court  should  be  of  opinion, 
that  the  plaintiffs  were  entitled  to  judgment,  the  defendant  was 
to  be  defaulted,  otherwise,  the  plaintiffs  were  to  be  nonsuited. 

Austin,  for  the  plaintiffs. 

Parsons  and  Stearns,  for  the  defendant. 

Shaw,  C.J.,  delivered  the  opinion  of  the  court. 

The  peculiar  features  of  this  action  are,  that  the  plaintiffs 
claim  of  the  second  indorser,  from  whom  they  immediately  took 
the  note.  The  question  is,  whether  the  forgery  of  the  indorse- 
ment of  the  name  of  a  prior  party,  is  a  good  defence  to  the  note ; 
and  the  Court  are  of  opinion  that  it  is  not. 

In  general  it  is  not  necessary  for  the  holder  to  prove  the 
signature  of  any  party  prior  to  the  party  whom  he  sues.  The 
reason  seems  to  be  obvious,  that  the  party  defendant,  by  his 
Indorsement,  has  admitted  the  ability  and  the  signature  of  all 
prior  parties.  (Bayley  on  Bills,  313;  Critchlow  v.  Parry,  2 
Oimpb.  1S2. )  The  effect  of  the  engagement  of  the  indorser  is, 
that  if  the  prior  parties  do  not  pay  the  note  according  to  its  tenor 
upon  due  presentment,  upon  notice  to  him,  he  will.  It  is  there- 
fore a  rule  upon  this  subject,  that  a  plaintiff  is  under  no  obligation 
to  prove  the  signature  of  those  prior  to  the  party  intended  to  be 
charged.  It  is  very  different_where  he  claims  against  the  acceptor 
of  a  bill  or  maker  of  a  note.  They  respectively  promise  to  pay  to 
the  payee  or  his  order,  and  until  he  has  made  such  order  by  his 
indorsement,  the  plaintiff  can  establish  no  title,  and  to  prove  such 
order,  he  must  prove  the  genuineness  of  his  signature.  (Smith 
v.  Chester,  1  T.  R.  654;  Lambert  v.  Pack,  1  Salk.  127.)  So  an 
acceptor  is  bound,  though  the  bill  be  forged.  (Jengs  v.  Fawler, 
2  Strange,  946). 

The  circumstance  that  this  bill  was  offered  for  discount,  by 
Brown,  makes  no  difference ;  the  plaintiff's  had  a  right  to  look  to 
their  immediate  indorser,  and  if  satisfied  to  take  the  note  on  his 
credit,  he  is  liable  to  them ;  and  it  was  for  him  to  see  that  he  has 
a  good  remedy  over  against  those  who  purport  to  be  prior  parties.  ' 

Defendant  defaulted. 

CONTRACT  OF  THE  IRREGULAR  OR  ANOMALOUS  INDORSER.    §  66. 

Gums  v.  Giegling.     (See  page  209.) 


Hills  v.  Place  347 

Section  VIII. — Presentment  and  Demand. 

PRESENTMENT  TO  PRINCIPAL  DEBTOR   NOT   NECESSARY.      §  J2. 

Harrisburg  Trust  Co.  v.  Shufeldt  {1897),  78  Fed.  292. 

Strudwick  &  Peters,  for  plaintiff. 
Hastings  &  Stead  man,  for  defendant. 

Hanford,  District  Judge.  This  is  an  action  to  recover  a  bal- 
ance due  after  deducting  partial  payments  upon  a  negotiable  prom- 
issory note,  made  payable  on  demand.  The  defendant  has 
demurred  to  the  complaint,  his  contention  being  that  the  same  is 
insufficient,  for  failure  to  allege  a  demand  prior  to  the  commence- 
ment of  the  action.  There  is  a  rule  of  long  standing,  and  sup- 
ported by  the  weight  of  authority  in  this  country,  that  the  com- 
mencement of  an  action  is  itself  a  demand,  and  that  failure  to 
request  payment,  prior  to  the  commencement  of  the  action,  affords 
no  ground  of  defense.  (Bank  v.  Fox,  Fed.  Cas.  No.  2,683;  5 
Am.  &  Eng.  Enc.  Law,  528Z46.  It  is  insisted,  however,  that  the 
courts  and  the  text-books  in  this  country  have  fallen  into  error  by 
following  early  decisions,  which  were  controlled  by  peculiar  facts, 
and  which  are  insufficient  of  themselves  to  establish  a  general 
rule  upon  the  subject.  It  is  unwise  to  depart  from  business  cus- 
toms and  practices  which  have  been  sanctioned  by  repeated  deci- 
sions of  courts,  and  acquiesced  in  for  a  considerable  time,  and 
which  may  fairly  be  supposed  to  have  been  contemplated  by  the 
parties  at  the  time  of  making  their  contract.  This  contract  must 
be  construed  as  one  having  been  made  the  subject  to  the  rule 
above  stated,  and  the  maker  of  the  note  is.  by  the  terms  of  his 
contract,  liable  without  any  demand,  prior  to  the  commencement 
of  an  action.  Demurrer  overruled. 

Hills  v.  Place  (1872),  48  N.  Y.  320. 

Appeal  from  judgment  of  the  General  Term  of  the  Superior 
Court  of  the  city  of  New  York,  affirming  a  judgment  entered  in 
favor  of  the  plaintiff  on  a  verdict. 

The  action  was  brought  to  recover  the  amount  of  a  promis- 
sory note,  made  by  the  defendant,  payable  one  month  after  date, 
at  the  Hanover  National  Bank  of  the  city  of  New  York,  to  the 
order  of  D.  Russel,  and  by  him  indorsed  to  the  plaintiff. 


3-48  Presentment  to  Principal  Deijtor 

The  judge,  on  the  trial,  after  the  testimony  was  closed, 
directed  the  jury  to  find  a  verdict  for  the  plaintiff  for  the  amount 
of  the  note  and  interest,  to  which  direction  an  exception  was  taken 
by  the  defendant. 

The  facts  material  to  the  decision  of  the  case  in  this  court 
are  sufficiently  stated  in  the  opinion. 

H.  C.  Place,  for  the  appellant. 

/.  R.  Hills,  for  the  respondent,  in  person. 

Lott,  Ch.C.  The  evidence  given  on  the  trial,  most  favor- 
ably construed  to  the  defendant,  does  not  prove  payment,  or 
establish  facts  sufficient  to  bar  a  recovery  for  damages  and  costs, 
as  well  as  the  principal  of  the  note. 

It  shows  that  the  note  was  presented  for  payment  on  behalf 
of  the  plaintiff  at  the  Hanover  National  Bank,  where  it  was  made 
payable,  about  n  o'clock  of  the  day  it  fell  due,  and  that  it  was 
not  then  paid ;  that  the  defendant,  on  being  notified  of  the  fact  by 
the  cashier,  immediately  thereafter,  between  eleven  and  twelve 
o'clock,  "put  funds  in  the  bank  and  gave  instructions  to  have  it 
paid  on  presentation." 

It  was  not  presented  for  payment  to  or  at  the  bank  or  to  the 
plaintiff,  at  any  time  or  place  after  the  funds  were  so  left,  before 
the  commencement  of  this  action. 

The  cashier  of  the  said  bank,  on  being  asked,  "what  is  the 
custom  of  banks  in  the  city  of  New  York  in  reference  to  present- 
ing notes?"  answered,  "that  the  custom  is  to  present  a  note  for 
payment  between  ten  and  three  o'clock,  but  a  man  has  until  three 
o'clock  to  pay  his  note,  and  it  cannot  be  protested  until  after 
three  o'clock."  He  also  stated  that  ordinarily  notes  are  presented 
between  ten  and  three  o'clock,  and  if  a  note  is  not  paid  on  the  first 
presentation  thereof,  that  it  is  necessary  to  present  it  again  or 
the  second  time,  according  to  custom,  and  that  "the  notary  never 
goes  until  three  o'clock." 

It  is  clearly  established,  by  the  preceding  statement,  that  the 
note  in  question  was  never  in  fact  paid  to  the  plaintiff,  but  it  is 
shown,  on  the  contrary,  that  the  funds  which  were  left  at  the 
bank,  to  be  applied  to  its  payment  on  presentation,  were  shortly 
thereafter  actually  withdrawn  by  the  defendant  himself. 

There  is  no  ground  for  the  theory  or  claim  of  the  defend- 
ant's counsel,  that  "the  parties  agreed  in  the  note  to  make  the 
Hanover  Bank  the  mutual  receiving  agent,  and  a  payment  to  that 
agent  on  the  third  day  of  grace  of  the  $230  to  pay  the  note,  and 
an  acceptance  of  that  by  the  agent,  was  a  payment  of  the  note, 


Hills  v.  Place  349 

and  the  maker  had  then  discharged  his  obligation,  and  the  holder 
had  only  to  go  to  the  common  agent,  the  bank,  and  receive  the 
money." 

The  bank  was  in  no  sense  the  plaintiff's  agent  for  the  col- 
lection of  the  note,  or  the  receipt  of  the  amount  due  thereon,  or 
otherwise. 

It  was  named,  in  the  connection  in  which  it  was  used,  merely 
as  the  place  where  its  business  was  transacted,  for  the  purpose 
of  making  payment  of  the  note  there,  without  conferring  or 
intending  to  confer  any  power,  authority  or  duty  on  the  associa- 
tion itself  in  reference  thereto. 

Such  designation  did  not  make  it  incumbent,  as  a  precedent 
condition,  to  create  a  liability  or  obligation  by  the  maker  of  the 
note  to  pay  it  or  to  give  a  right  of  a  recovery  thereon,  that  it 
should  be  presented  at  that  particular  place  for  payment.     The'i 
effect  or  consequence  of  an  omission  or  failure  to  make  such  pre-  '  r 
sentment  was  not  to  exonerate  the  maker  from  his  promise  to 
pay  what  he  had  agreed,  but  only  to  relieve  him  from  damages 
in  case  he  was  ready  at  the  time  and  place  appointed  to  pay  it,^ 
and  there  was  no  one  there  to  receive  the  money.    Such  readiness 
is  considered  equivalent  to  a  tender  of  the  sum  payable,  and  an 
answer  pleading  that  fact,  and  a  payment  of  the  money  due  into 
court,  would  be  a  bar  to  a  recovery  of  interest  and  costs,  but  not 
to  the  cause  of  action. 

This  principle  is  settled  by  the  decisions  in  Wolcott  v.  Van 
Santvoord  (17  John.,  248)  and  Caldwell  v.  Cassidy  (8  Cow., 
271). 

The  custom  referred  to  by  the  cashier  does  not  interfere  with 
that  principle.  It  evidently  does  not  affect  the  maker's  liability. 
It  only  shows  that  the  usual  banking  hours  are  allowed  him  to 
make  his  payment,  and  that  his  note  cannot  be  protested  till  they 
have  passed. 

Assuming  that  the  leaving  of  the  money  in  the  bank,  after 
the  demand  made  by  the  plaintiff,  was  sufficient  proof  of  his  read- 
iness to  pay  the  note,  and  is  to  be  considered  as  a  tender  of  pay- 
ment in  due  time,  yet  he  has  entirely  failed  to  show  that  he  ever 
brought  the  money  into  court;  and  asaprotest  is  never  necessary 
to  charge  or  hold  the  maker,  it  follows,  from  the  views  above 
expressed,  that  the  plaintiff  was  entitled  to  recover  the  amount 
of  the  note,  with  interest ;  and,  there  being  no  disputed  questions 
oFfact,  the  court  was  authorized  to  give  a  direction  to  the  jury 
to  find  a  verdict  in  favor  of  the  plaintiff,  for  both  principal  and 
interest. 


350  Time  of  Presentment 

Tt  is,  therefore,  unnecessary  to  consider  the  sufficiency  of  the 
exception  to  that  direction,  so  far  as  it  related  to  the  right  to 
recover  interest,  or  what  was  the  effect  of  the  presentment  of  the 
note  and  the  refusal  to  pay  it  before  the  deposit  of  the  funds  to 
meet  it.  The  judgment  appealed  from  must  be  affirmed  with 
costs. 

All  concur. 

Judgment  affirmed. 


^ 


TIME  OF  PRESENTMENT.  §  74. 

Farnsworth  v.  Allen  (1855),  4  Gray  (Mass.),  453. 

Action  of  contract  against  the  indorser  of  the  following  prom- 
issory note : 

"Boston,  May  23,  1853. 
"Three  months  after  date  I  promise  to  pay  to  the  order  of 
Walter  M.  Allen  one  hundred  and  fifty  dollars,  value  received. 

"Francis  Freeman." 

At  the  trial  in  the  court  of  common  pleas,  a  witness  testified 
that  he  received  the  note,  at  the  close  of  bank  hours  on  the  last 
day  of  grace,  from  the  Grocers'  Bank  in  Boston,  who  had  received 
the  note  for  collection  from  the  Cambridge  Market  Bank,  but  did 
not  know  the  residence  of  the  maker  or  indorser ;  that  he  inquired 
of  a  director  of  the  Cambridge  Market  Bank,  and  learned  that 
the  maker  lived  at  Winchester  and  the  indorser  at  North  Cam- 
bridge ;  and  the  same  afternoon  carried  the  note  to  a  notary  public 
in  Charlestown,  and  told  him  where  the  parties  resided. 

The  notary  public  testified  that,  as  soon  as  he  could  after 
receiving  the  note  for  protest,  he  went  to  the  house  of  the  maker, 
(about  ten  miles  from  Boston,)  and  arrived  there  about  nine 
o'clock  in  the  evening;  that  there  was  no  light  in  the  house,  and 
the  inmates  appeared  to  have  retired  for  the  night ;  that  he  rung 
the  bell,  and  after  some  time  the  maker  came  to  the  door  with  a 
light ;  and  he  presented  the  note,  stated  its  contents,  and  demanded 
payment,  which  the  maker  refused,  saying  that  he  could  not,  or 
should  not,  or  would  not  pay  it ;  that  he  returned  with  the  note 
to  Charlestown,  and  on  the  same  evening  put  in  the  post  office  a 
proper  notice  of  dishonor,  addressed  to  the  defendant  at  North 
Cambridge. 

The  defendant  contended  that  the  demand  proved  was  not 
sufficient  to  charge  the  indorser.     But  Hoar,  J.,  ruled  otherwise, 


Nelson  y.  Grondahl  351 

the  jury  returned  a  verdict  for  the  plaintiff,  and  the  defendant 
alleged  exceptions. 

/.  G.  Abbott,  for  the  defendant. 
C.  R.  Train,  for  the  plaintiff. 

Bigelow,  J.  The  note  declared  on,  not  being  payable  at  a 
bank,  or  at  any  place  where  business  was  transacted  during  cer- 
tain stated  hours  in  each  day,  was  properly  presented  to  the  maker 
at  his  place  of  residence.  It  was  also  the  duty  of  the  holder  to 
present  it  within  reasonable  hours  on  the  day  of  its  maturity. 
No  fixed  rule  can  be  established,  by  which  to  determine  the  hour 
beyond  which  a  presentment,  in  such  case,  will  be  unreasonable 
and  insufficient  to  charge  an  indorser.  Generally,  however,  it 
should  be  made  at  such  hour^that,  having  regard  to  the  habits 
and  usages  of  the  community  -where  the  maker  resides,  he  may 
be  reasonably  expected  to  be  in  a  condition  to  attend  to  ordinary 
business.  In  the  present  case,  taking  into  consideration  the  dis- 
tance of  the  place  of  residence  of  the  maker  from  Boston,  where 
the  note  was  dated,  and  where  it  was  held  when  it  became  due; 
the  means  that  were  taken  to  ascertain  the  residence  of  the  maker, 
and  the  season  of  the  year  at  which  the  note  fell  due,  we  are  of 
opinion  that  a  presentment  at  nine  o'clock  in  the  evening  was 
seasonable  and  sufficient.  It  is  quite  immaterial  that  the  maker 
and  his  family  had  retired  for  the  night.  The  question  whether 
a  presentment  is  within  reasonable  time  cannot  be  made  to  depend 
on  the  private  and  peculiar  habits  of  the  maker  of  a  note,  not 
known  to  the  holder ;  but  it  must  be  determined  by  a  consideration 
of  the  circumstances  which,  in  ordinary  cases,  would  render  it 
seasonable  or  otherwise.  (Barclay  v.  Bailey,  2  Campb.  527  ;  Triggs 
v.  Newnham,  10  Moore,  249,  and  1  Car.  &  P.  631 ;  Wilkins  v. 
Jadis,  2  B.  &  Ad.  188;  Cayuga  County  Bank  v.  Hunt,  2  Hill, 
N.  Y.  635). 

Exceptions  overruled. 

WHERE  AND  TO  WHOM  PRESENTMENT  SHOULD  BE  MADE.      §§  74,  75. 

Nelson  v.  Grondahl  (1904),  (N.  D.)   100  N.  W.  1093. 

Appeal  from  District  Court,  Cass  county ;  Charles  A.  Pollock, 
Judge. 

Action  by  Peter  Nelson  against  Olaf  Grondahl.  Judgment 
for  defendant,  and  plaintiff  appeals.     Reversed. 

H.  R.  Turner,  for  appellant. 

Benton,  Lovell  &  Holt,  for  respondent. 


352  Where  Presentment  Should  he  Made 

Morgan,  J.  This  action  is  brought  against  the  defendant  as 
indorser  of  a  promissory  note  of  which  he  was  the  payee.  The 
plaintiff,  in  his  complaint,  alleges  that  one  Steffes  made  and  deliv- 
ered such  promissory  note  to  the  defendant,  and  that  the  defend- 
ant duly  indorsed  and  transferred  it  to  the  plaintiff  for  value,  and 
that  the  note  was  duly  presented  for  payment  when  due,  and  pay- 
ment refused.  The  defense  attempted  to  be  proven  at  the  trial 
was  that  the  note  was  not  presented  for  payment  in  the  manner 
provided  by  law.  At  the  close  of  the  taking  of  the  testimony  the 
district  court  directed  a  verdict  for  the  plaintiff  for  the  sum  of 
$339.84,  the  amount  claimed  to  be  due  in  the  complaint,  and 
denied  defendant's  motion  to  direct  a  verdict.  The  defendant 
thereafter  made  a  motion  for  judgment  notwithstanding  the  ver- 
dict, on  grounds  stated,  or  for  a  new  trial  on  account  of  errors 
occurring  at  the  trial  and  the  insufficiency  of  the  evidence  to  sus- 
tain the  verdict.  The  motion  for  judgment  notwithstanding  the 
verdict  was  granted  by  the  court,  and  the  appeal  is  from  the  judg- 
ment entered  on  such  verdict.  A  statement  of  the  case  was  settled, 
specifying  the  errors  relied  on. 

The  only  specification  of  error  made  on  this  appeal  is  that  the 
court  erred  in  granting  the  motion  for  judgment  notwithstanding 
the  verdict.  The  question  raised  by  such  specification  is  that  there 
is  no  evidence  showing  that  the  note  was  presented  for  payment 
when  it  became  due,  as  is  required  by  the  statute,  before  an 
indorser  can  be  held  liable  under  his  indorsement.  Section  70, 
c.  100,  Rev.  Codes  1899.  The  certificate  of  the  notary  who  pro- 
tested the  note  for  non-payment  is  in  evidence,  and  recites  that 
"I,  *  *  *  did  present  the  note  hereto  attached,  *  *  * 
and  demanded  payment  thereof,  which  was  refused."  The  cer- 
tificate is  silent  as  to  the  place  of  presentment  and  as  to  the 
person  to  whom  presentment  was  made.  The  note  was,  by  its 
express  terms,  made  payable  to  Grondahl,  the  defendant,  "at  his 
store  in  Fargo,  North  Dakota."  The  respondent  contends  that 
the  certificate  of  the  notary  is  of  itself  insufficient  to  show  a 
proper  presentment  of  the  note  for  payment  to  the  maker,  and 
that  the  evidence,  outside  of  the  certificate,  is  not  competent  to 
prove  that  the  note  was  presented  for  payment  as  required  by  the 
terms  of  the  statute.  Section  J$  of  the  Negotiable  Instruments 
Law  of  1899  (Civ.  Code,  p.  1048)  provides  that  "presentment  for 
payment  is  made  at  the  proper  place  where  a  place  of  payment  is 
specified  in  the  note  and  it  is  there  presented."  Section  72  of  the 
same  law  provides  that  presentment  for  payment  is  sufficient  when 
made  at  the  proper  place  to  the  person  primarily  liable  on  the 


Nelson  v.  Grondahl  353 

instrument,  or,  if  he  is  absent  or  inaccessible,  to  any  person  found 
at  the  place  where  presentment  is  made.  The  trial  court  granted 
the  motion  for  judgment  notwithstanding  the  verdict  on  the 
ground  that  the  notary's  certificate  did  not  show  presentment  of 
the  note  for  payment  at  the  place  where  the  note  was,  by  its 
terms,  made  payable,  and  that  the  notary's  evidence  of  that  fact 
was  not  competent  to  prove  such  presentment,  he  having  stated 
that  he  had  no  independent  recollection  of  the  fact  of  such  pre- 
sentment. If  the  fact  of  presentment  for  payment,  as  required 
by  the  statute,  is  supported  by  any  competent  evidence  that  reason- 
ably tends  to  show  due  presentment,  the  granting  of  the  motion 
for  judgment  was  erroneous.  The  notary  was  called  as  a  witness, 
and  testified  that  he  recollected  that  the  note  was  by  him  presented 
for  payment ;  that  he  had  no  independent  recollection  of  the  fact, 
but  that  he  so  testified  from  an  inspection  of  his  certificate  stating 
the  fact.  He  further  testified  that  in  cases  where  notes  specified 
the  place  where  payment  was  to  be  made  he  presented  them  at 
that  place,  and  that  he  did  so  in  every  instance.  Whether  this 
evidence,  in  addition  to  the  certificate,  is  competent,  and  sufficient 
to  show  presentment  for  payment  at  the  proper  place  in  accord- 
ance with  the  statute,  is  the  only  question  arising  on  the  appeal. 
It  is  first  claimed  that  there  is  no  evidence  that  the  note  was 
presented  to  the  person  primarily  liable  on  the  note ;  that  is,  the 
maker.  The  certificate  does  not  state  the  name  of  the  person  to 
whom  it  was  presented,  and  the  notary  does  not  give  the  name  of 
the  person  in  his  testimony.  A  presentment  at  the  bank._whei£-a.. 
note  is  payable  is  a  sufficient  presentment  to  the  maker,  although 
the  name  of  the  person  to  whom  presented  is  not  given.  It  is 
held  to  have  been  made  to  some  person  connected  with  the  bank. 
This  is  expressly  held  in  Ashe  v.  Beasley,  6  N.  D.  191,  69  N.  W. 
188.  If  the  notary's  evidence  is  receivable,  it  brings  the  evidence 
in  this  record  within  the  rule  stated  in  Ashe  v.  Beasley,  supra,  and 
is  sufficient  to  show  presentment  at  the  store  where  the  note  was 
made  payable,  and  to  a  person  connected  with  such  store.  See 
Douglas  v.  Bank  of  Commerce  (Tenn.),  36  S.  W.  874;  1  Daniel, 
Neg.  Inst.  (5th  Ed.),  §635.  In  such  cases  no  personal  demand 
on  the  maker  is  necessary.  He  is  primarily  liable  on  his  promise 
to  pay.  Section  70,  Neg.  Inst.  Law  1899  (Civ.  Code,  p.  1048). 
A  presentment  is  necessary  in  order  to  fix  the  liability  of  the 
indorser,  which  is  a  conditional  obligation  to  pay  the  note  if  not 
paid  at  maturity  by  the  maker.  If  a  maker  stipulates  to  pay  at 
maturity  at  a  specified  place,  and  the  note  is  there  presented  for 
payment  at  its  maturity,  and  payment  refused  or  not  made,  the 


354  Where  Presentment  Should  be  Made 

liability  of  the  indorser  is  fixed  after  notice  to  him,  although 
there  was  no  personal  demand  made  on  the  maker.  (Pearson  v. 
Bank  of  the  Metropolis,  i  Pet.  89,  7  L.  Ed.  65;  State  Bank  v. 
Hurd,  12  Mass.  172;  Whitwell  v.  Johnson,  17  Mass.  449,  9  Am. 
Dec.  165 ;  Meyer  v.  Hibsher,  47  N.  Y.  265.)  A  presentment  at 
the  store  was  therefore  sufficient  to  bind  the  indorser  after  notice 
to  him  of  the  fact.  It  remains  to  be  determined  whether  the 
evidence  of  the  notary  was  admissible  to  supply  facts  that  occurred 
in  reference  to  the  presentment  that  were  omitted  from  the  recitals 
of  this  certificate.     It  is  well  settled  that  the  facts  stated  in  the 


certificate  of  protest  of  promissory  notes  may  be  supplemented 
by  other  facts  that  transpired,  and  that  such  other  facts  may  be 
shown  by  the  oral  testimony  of  the  notary  or  by  other  testimony. 
(Ash e  v.  Be astcy~supra;  Seneca  County  Bank  v.  Neass,  5  Denio, 
334;  Daniel,  Neg.  Inst.  [5th  Ed.],  §969,  and  cases  cited.)  On 
this  question  the  respondent  does  not  contend  that  the  defects  of 
notary's  certificate  may  not  be  supplied,  but  he  earnestly  contends 
that  there  is  no  evidence  of  presentment  at  the  proper  place, 
because  the  notary  testifies  that  he  has  no  independent  recollection 
of  such  fact  aside  from  the  certificate.  Respondent  contends  that 
the  notary's  evidence  that  he  presented  notes  for  payment  in 
every  instance  at  the  place  where  payable  is  inadmissible  merely 
as  a  statement  of  his  custom  unaccompanied  by  some  recollection 
of  the  fact.  We  agree  that  on  authority  and  principle  the  evidence 
should  be  held  admissible  in  cases  like  the  one  under  consideration. 
The  evidence  objected  to  in  this  case  is  not  merely  the  statement 
of  the  notary's  custom  only.  He  had  his  certificate  of  protest 
before  him,  from  which  he  was  able  to  say  that  a  presentment 
was  made  by  him  of  the  note  described.  The  fact  of  a  present- 
ment was  established  by  the  certificate  in  a  general  way,  but  not 
definitely.  Whether  the  presentment  was  made  at  a  right  place 
was  not  stated  nor  established  thereby.  The  certificate  showed 
some  kind  of  a  presentment,  but  one  not  necessarily  legal  or 
proper  under  the  statute.  The  bare  aHegation  that  the  note  was 
presented  for  payment  is  not  equivalent  to  certifying  that  the  note 
wj^^esentecTat  the  place  where  it  should  have  been  doneL  The 
certificate  of  the  notary  is  evidence  onTyof  facts  stated  therein^ 
and  it  will  not  be  enlarged  by  indulging  in  presumptions^  The 
facts  must  be  stated,  and,  if  stated,  the  certificate  is  prima  facie 
evidence  that  the  facts  properly  a  part  of  such  certificate  are 
true.  (People's  Bank  v.  Brooke,  31  Md.  7,  1  Am.  Rep.  11 ;  Duck- 
ert  v.  Von  Lilcinthhl,  11  Wis.  56;  Magoun  v.  Walker,  49  Me.  419; 
Insurance  Co.  v.  Wilson,  29  W.  Va.  528,  2  S.  E.  888.)     The  wit- 


Wallace  v.  Crilley  355 

ness'  invariable  practice  was  proper  evidence  to  sustain  and  to 
supplement  the  statements  of  the  certificate  that  presentment  had 
been  made.  In  Eureka  Ins.  Co.  v.  Robinson,  56  Pa.  256,  94  Am. 
Dec.  65,  it  is  said :  "We  think  it  not  uncommon  in  practice  to  cor- 
roborate the  defective  memory  of  a  vvitnesss  by  proof  of  what 
was  his  habit  in  similar  circumstances.  Thus  a  subscribing  wit- 
ness to  a  will  or  bond,  if  unable  to  recollect  whether  he  saw  the 
testator  or  obligor  sign  the  instrument,  or  heard  it  acknowledged, 
is  often  permitted  to  testify  to  his  own  habit  never  to  sign  as  a 
witness  without  seeing  the  party  sign  whose  signature  he  attests, 
or  hearing  that  signature  acknowledged.  And  it  seems  to  be 
persuasive  and  legitimate  'supporting'  evidence."  See,  also, 
Flack  v.  Green,  3  Gill  &  J.  474 ;  Miller  v.  Hackley,  5  Johns.  375, 
4  Am.  Dec.  372;  Gillette  on  Indirect  &  Collateral  Ev.  §  68;  Mar- 
tin v.  Smith  [Mich.],  66  N.  W.  61 ;  Seneca  County  Bank  v.  Neass, 
supra;  Lindcnbcrger  v.  Bcall,  6  Wheat.  104,  5  L.  Ed.  216;  State 
v.  Rau'ls,  2  Nott.  &  McC.  331.  The  testimony  was  therefore 
competernVto  support  or  corroborate  the  notary's  evidence  that  he 
recollected  presenting  the  note  for  payment,  and,  together  with 
the  certificate,  was  sufficient  to  take  the  case  to  the  iurv~6rr~tKe~ 
question  ofdue  presentment  of  the  note  to  the  maker  for  payment 

The  defendant  included  in  his  motionTofyudgmeht  notwith- 
standing the  verdict  an  alternative  motion  for  a  new  trial,  and 
gave  notice  of  intention  to  move  for  a  new  trial,  and  therein 
specified  the  grounds  thereof.  Having  prevailed  in  the  court 
below  on  his  motion  for  judgment  notwithstanding  the  verdict, 
the  motion  for  a  new  trial  was  not  perfected.  Leave  to  do  so 
after  filing  the  remittitur  in  the  clerk  of  the  district  court's  office 
is  granted.  (Kreatz  v.  St.  Cloud  School  District  [Minn.],  81 
N.  W.  533.)  If  such  motion  is  not  made,  judgment  is  directed 
to  be  entered  on  the  directed  verdict  for  the  plaintiff. 

The  judgment  is  reversed,  and  the  cause  remanded  for 
further  proceedings.  * 

All  concur.  ^-    ^U>—  ■ 

Wallace  v.  Crilley,  imp.  (1879),  46  Wis.  577. 

Appeal  from  the  County  Court  of  Milwaukee  County. 
The  case  is  stated  in  the  opinion.     The  defendant,  Crilley, 
appealed  from  a  judgment  in  favor  of  the  plaintiff. 

Brief  for  the  appellant  by  Johnson,  Rietbrock  &  Halsey,  and 
oral  argument  by  Mr.  Johnson. 

Brief  for  the  respondent  by  G.  C.  Markham  and  E.  P.  Smith, 
and  oral  argument  by  Mr.  Smith. 


356  Where  Presentment  Should  be  Made 

Taylor,  J.  This  action  is  brought  upon  a  promissory  note, 
given  by  the  defendant  Sears,  and  indorsed  by  the  defendant  and 
appellant  Crillcy.  Neither  of  the  defendants  appeared  or  put  in 
any  answer  or  demurrer  in  the  court  below,  and  judgment  for 
the  amount  of  the  note  and  costs  of  suit  was  rendered  against  both 
defendants.  Crilley  appealed  from  the  judgment,  and  assigns  as 
error,  that  the  complaint  does  not  state  facts  sufficient  to  consti- 
tute a  cause  of  action  against  him. 

The  point  made  is,  that  the  complaint  does  not  show  that  the 
note  was  presented  to  the  maker  thereof  for  payment,  and  pay- 
ment thereof  demanded,  at  the  maturity  of  said  note.  The  fol- 
lowing are  the  allegations  of  the  complaint  upon  that  subject : 
"And  the  plaintiff  further  says  that,  when  said  note  became  due 
and  payable,  the  samo  was  presented  at  the  office  of  the  maker 
of  said  note,  the  defendant  William  G.  Sears,  in  the  Chamber  of 
Commerce  building  in  the  city  of  Milwaukee,  Wisconsin,  for  pay- 
ment, and  that  payment  was  then  and  there  duly  demanded  upon 
said  note,  and  payment  thereof  was  then  and  there  refused."  The 
complaint  contains  a  proper  allegation  of  protest  for  non-payment, 
and  notice  of  such  non-payment  given  to  the  said  defendant  Cril- 
ley. 

The  appellant  insists  that  a  presentation  and  demand  of  pay- 
ment at  the  place  of  business  of  the  maker  is  not  sufficient;  that 
the  demand  must  be  made  personally  of  the  maker,  and,  if  not  so 
made,  the  excuse  for  not  making  such  presentment  must  be  set 
out  in  the  complaint. 

We  think  the  learned  counsel  for  the  appellant  misapprehends 
the  rule.  Story,  in  his  work  on  Bills  of  Exchange,  says :  "When 
it  is  said  that  the  'bill  must  be  presented  for  acceptance,  at  the 
place  of  the  domicil  of  the  drawee,'  we  are  to  understand  by  this 
expression,  the  town,  city,  village,  or  other  municipality,  within 
which  he  has  his  residence.  But  in  many  cases  the  holder  will 
have  an  election  as  to  the  place  of  presentment.  Thus,  for  exam- 
ple, if  the  drawee  has  his  home  or  domestic  establishment  in  one 
town,  and  his  place  of  business  is  in  another  town,  a  presentment 
made  at  either  place  will  be  good.  So,  if  the  drawee  has  his 
dwelling  house  or  home  in  one  part  of  the  same  town,  and  his 
place  of  business  in  another  part,  a  presentment  may  be  made  at 
either,  at  the  option  of  the  holder."     (Sec.  236,  and  notes). 

The  same  rule  applies  to  the  presentation  of  promissory  notes, 
when  such  presentation  and  demand  of  payment  are  necessary  to 
charge  an  indorser.    See  Shed  v.  Brett  and  Trustees,  1  Pick.,  413 ; 


Wallace  v.  Crilley  357 

Williams  v.  Bank  of  the  United  States,  2  Peters,  96;  Ogden  v. 
Cowley,  2  Johns.  R.,  274. 

In  the  case  at  bar,  the  complaint  alleges  that  the  note  in  ques-1 
tion  was  presented  at  the  office  of  the  maker,  Sears,  in  the  city 
of  Milwaukee ;  and,  there  being-  no  answer,  it  must  be  taken  as 
true  that  the  maker  had  an  office  or  place  of  business  in  the  city  of 
Milwaukee,  and  that  the  presentation  of  the  note  for  payment  at 
such  office  was  a  proper  presentation. 

The  learned  counsel  also  insists  that  the  complaint  is  defec- 
tive in  not  stating  that  the  note  was  presented  to  the  maker,  and  a 
demand  of  payment  made  of  him,  or  of  some  other  person  who 
was  authorized  by  such  maker  to  receive  and  answer  such  present- 
ment and  demand.  We  think  this  objection  is  answered  by  the 
allegation  in  the  complaint,  "that  payment  was  then  and  there 
duly  demanded  upon  said  note,  and  that  payment  was  then  and 
there  refused."  It  having  been  shown  that  the  office  was  the 
proper  place  to  present  and  demand  payment  of  the  note,  the 
above  allegation  that  payment  was  then  and  there  duly  demanded 
and  refused,  is  equivalent  to  an  allegation  that  the  same  was  pre- 
sented within  the  usual  business  hours,  and,  if  it  be  necessary  to 
show  that  it  was  presented  to  the  maker,  or  to  some  one  author- 
ized to  answer  for  him  (which  we  very  much  doubt),  that  it  was 
so  presented. 

This  court  held  in  the  case  of  Batik  v.  Countryman,  11  Wis. 
399,  that,  in  an  action  against  an  indorser  of  a  promissory  note, 
it  was  sufficient  if  the  complaint  alleged  in  general  words,  "that 
payment  of  the  note  was  duly  demanded  at  maturity.77  without" 
any  turther  statement  as  to  the  time  or  place  of  demand,  or  of  the, 
person  ot  whom  such  payment  was  demanded.  In  that  case  the 
court  say :  "This  manner  of  stating  the  demand  of  payment,  and 
notice  of  the  demand  and  non-payment  to  the  indorser,  has  been 
held  to  be  sufficient  in  New  York  since  the  adoption  of  the  code, 
and  we  have  no  doubt  that  those  decisions  are  in  conformity  to  the 
spirit  of  that  enactment.  We  are  disposed  to  follow  these  decis- 
ions upon  this  point,  and  to  hold  that  such  a  general  statement  of 
the  performance  of  the  conditions  precedent  to  a  party's  right  to 
recover  against  the  indorser  is  sufficient."  The  rule  laid  down  in 
this  case  has  been  followed  and  approved  in  Smith  v.  Railway  Co.. 
19  Wis.,  326-331;  Cutler  v.  Ainsworth,  21  Wis..  381;  Town  of 
Pine  Valley  v.  Town  of  Unity,  40  Wis..  682.  In  the  last  case, 
which  was  an  action  brought  to  recover  for  the  support  of  a 
pauper,  in  which  it  was  necessary,  in  order  to  entitle  the  plaintiff 
to  recover,  to  prove  that  a  written  notice  had  been  given  bv  the 
supervisors  of  the  complaining  town,  to  one  or  more  of  the  super- 


358  Where  Presentment  Should  be  Made 

visors  of  the  defendant  town,  before  suit  brought,  stating  therein 
certain  matters  as  prescribed  by  law,  it  was  held  that  an  averment 
in  the  complaint  that  the  plaintiff  duly  notified  the  defendant,  was 
a  sufficient  averment  of  legal  notice  in  all  respects.  These  cases 
clearly  show  that  the  objections  taken  by  the  learned  counsel  for 
the  appellant  in  this  case  cannot  be  supported,  and  that  the  com- 
plaint states  a  good  cause  of  action  against  the  appellant. 

The  cases  above  cited  are  not  in  conflict  with  the  decision  in 
Duckcrt  v.  Von  Lilcinthal,  n  Wis.,  57,  cited  by  the  learned  coun- 
sel for  the  appellant,  and  relied  upon  by  him  to  sustain  his  objec- 
tions to  the  complaint  in  the  case  at  bar.  In  that  case  there  was 
no  evidence  given  on  the  trial  of  any  demand  of  payment  of  the 
maker  of  the  note,  except  what  was  contained  in  the  certificate 
of  the  notary.  The  court  held  that  such  certificate  was  not  evi- 
dence of  the  contents  of  the*  notice  served,  and  the  judgment  was 
reversed  on  that  ground.  What  was  said  further  in  the  case  by 
the  late  learned  Justice  Paine,  was  not  necessary  to  the  determina- 
tion of  the  case.  The  statement  made  by  Justice  Paine,  that  "the 
certificate  should  show  presentment  to  the  maker,  or  its  legal 
equivalent,  and  should  not  be  left  to  intendment  or  presumption," 
was  clearly  not  intended  by  him  to  apply  to  the  allegations  neces- 
sary in  a  complaint.  He  was  speaking  of  the  proof  necessary  to 
be  given  on  the  trial,  to  prove  the  truth  of  the  allegation  that 
presentment  had  been  duly  made  and  payment  duly  demanded.. 
That  he  intended  to  limit  this  statement  to  the  proof  to  be  made, 
and  not  to  the  allegations  necessary  to  be  embodied  in  the  com- 
plaint, is  clear  from  the  fact  that  he  assented  to  the  decision  made 
in  Frankfort  Bank  v.  Countryman,  supra,  decided  at  the  same 
term. 

By  the  Court — The  judgment  of  the  county  court  is  affirmed. 


\jcr-  tqX*^^ 


King  v.  Crowell  (1873),  61  Me.  244. 

On  facts  agreed. 

Assumpsit  against  the  defendant  as  indorser  of  the  following 
promissory  note,  his  signature  admitted  to  be  genuine. 
"$150.00.  "April  8,  1871. 

"Four  months  after  date  I  promise  to  pay  to  the  order  of  A. 
J.  Crowell  one  hundred  and  fifty  dollars.     Value  received. 

"H.  E.  Morton." 

Endorsed,  "A.  J.  Crowell,  Jeremiah  Glidden,  C.  H.  Glidden." 

Writ  dated  Feb.  17,  1872.    Plea,  general  issue. 


King  v.  Crowell  359 

This  note  was  negotiated  to  the  plaintiff  for  a  full  considera- 
tion a  short  time  after  its  date. 

The  maker  and  the  indorsers  resided  in  Winthrop  village,  and 
the  plaintiff  in  Monmouth.  H.  E.  Morton,  at  the  time  of  the 
making  of  the  note  in  question,  was  a  manufacturer  of  boots  and 
shoes,  and  a  dealer  in  boots,  shoes,  hats,  and  caps,  and  had  a 
store  and  place  of  business  in  said  Winthrop  village.  On  the 
third  day  of  July,  1871,  the  maker  failed  in  business.  His  real 
estate  and  goods  were  attached  on  that  day,  and  his  place  of  busi- 
ness closed,  the  attaching  officer  taking  possession  of  the  keys 
and  the  goods.  On  Friday,  the  morning  of  August  n,  1871,  the 
plaintiff  went  to  Winthrop  for  the  purpose  of  collecting  this  note, 
or  of  taking  the  necessary  steps  to  hold  the  indorsers.  He  went 
to  the  store  recently  occupied  by  the  maker  of  the  note,  and  find- 
ing it  closed  he  went  directly  to  Morton's  house,  with  the  note  in 
his  possession,  for  the  purpose  of  making  a  demand  of  payment. 
Morton  was  not  at  the  house,  but  the  plaintiff  was  informed  he 
was  on  the  street,  where  the  plaintiff  found  him  about  ten  o'clock, 
a.  m.,  and  then  and  there  requested  payment  of  the  note  of  said 
Morton,  which  was  refused.  About  two  hours  afterwards,  on  the 
same  day,  the  plaintiff  sought  the  defendant,  told  him  he  had 
demanded  payment  of  the  note  of  Morton,  that  he  refused  to  pay 
it,  and  informed  him  (defendant)  that  he  should  look  to  him,  as 
indorser,  for  the  payment  of  the  note.  The  defendant  replied  that 
he  would  look  into  the  matter,  and,  if  he  found  that  he  was  holden, 
would  see  the  note  paid  in  two  or  three  weeks.  In  two  or  three 
weeks  the  plaintiff  called  on  the  defendant  again  for  payment, 
when  the  defendant  refused  to  pay,  saying  that  he  had  inquired 
carefully  into  his  liability  as  indorser  of  this  note,  and  was 
advised  that  he  was  not  liable,  and  should  not  pay  the  same. 

It  was  agreed  that  upon  the  above  facts  the  full  court  should 
enter  such  judgment  as  the  law  required. 

If  the  action  could  be  maintained,  defendant  to  be  defaulted; 
otherwise,  plaintiff  to  become  nonsuit. 

E.  Kempton,  for  the  plaintiff. 
/.  H.  Potter,  for  the  defendant. 

Virgin,  J.  When  the  defendant  indorsed  and  put  into  circu- 
lation the  note  in  suit,  he  thereby  ordered  the  maker  to  pay  the 
amount  therein  specified  to  the  plaintiff ;  and  he  also  thereby 
promised  that  if  the  note  were  duly  demanded  of  the  maker  and 
not  paid,  then  he  himself  would,  upon  receiving  due  notice  of  the 
demand  and  non-payment,  pay  it  to  the  plaintiff. 


360  Where  Presentment  Should  be  Made 

And  now,  in  this  suit  upon  his  promise,  the  defendant  declines 
to  pay  the  note  on  the  following  alleged  grounds : 

I.  That  the  demand  was  not  lawful  inasmuch  as  it  was  made 
on  the  street. 

The  general  rule  of  law  is  that  the  holder  must  use  diligence 
to  find  the  maker  and  demand  payment  of  him ;  and  the  inquiry 
will  be,  whether,  under  the  circumstances  of  the  case,  due  dili- 
gence has  been  used.     (3  Kent's  Com.  129). 

It  is  familiar  law  that  when  a  promissory  note  payable  gener- 
ally, and  not  at  a  specified  place,  is  seasonably  demanded  at  the 
maker's  known  and  settled  place  ot  business  for  the  transaction 
of  his  moneyed  concerns,  it  is  sufficient  to  hold  the  indorser.  And 
the  same  may  be  said  of  a  like  demand  made  at  his  place  of  resi- 
dence. Neither  does  it  make  any  difference  whether  the  maker  be 
personally  present  or  temporarily  absent  at  the  time  of  the 
demand.  In  either  case,  the  law  has  for  many  years  been  constant 
in  declaring  that  the  evidence  afforded  by  such  a  demand  consti- 
tutes full  proof  of  due  diligence  on  the  part  of  the  holder. 

But  in  the  case  at  bar  the  plaintiff  went  still  further  than  the 
technical  exactions  of  the  law  required.  He  was  a  resident  of 
Monmouth.  On  the  day  the  note  became  due  he  went  to  Win- 
throp  village,  where  both  the  maker  and  the  defendant  resided, 
"for  the  purpose  of  collecting  this  note,  or  of  taking  the  neces- 
sary steps  to  hold  the  indorser."  On  going  to  the  store  which  had 
been  occupied  by  the  maker  as  his  place  of  business,  he  found 
it  had  been  closed  and  in  the  possession  of  an  officer  more  than 
thirty  days;  that  the  maker  had  failed  in  his  business,  and  that 
all  his  property  was  under  attachment.  Thereupon  the  plaintiff 
went  to  the  maker's  place  of  residence,  where  he  was  informed 
that  the  maker  was  not  at  the  house,  but  had  gone  out  on  the 
street.  Had  he  gone  through  the  ceremony  of  demanding  pay- 
ment of  the  note  at  the  house,  while  the  maker  was  out  on  the 
street,  the  law  would  pronounce  the  plaintiff's  diligence  ample. 
But  not  finding  the  maker  at  home  the  plaintiff  trebled  his  dili- 
gence, sought  and  found  him  on  the  street  in  that  country  village, 
and  then  and  there  requested  payment  of  the  note  of  the  maker 
personally,  which  was  refused. 

It  does  not  appear  (as  it  would  be  likely  to,  if  true)  that  any 
objection  to  the  place  of  demand  was  made  by  maker.  If  he  had 
had  funds  with  which  to  pay,  not  with  him,  but  at  his  house,  he 
would  at  once  have  said  so.  If  he  had  objected  to  the  place  and 
requested  the  plaintiff  to  accompany  him  to  his  house  and  receive 
the  money  due  on  the  note,  and  the  plaintiff  had  declined  so  reas- 


King  v.  Crowell  361 

onable  a  request,  the  legal  aspect  of  this  branch  of  the  case  might 
thereby  have  been  materially  changed.  But  no  such  facts  exist. 
He  simply  refused  payment,  and,  in  all  human  probability,  for 
the  real,  though  to  him,  perhaps,  unpleasant,  reason  that  all  his 
property  was  in  the  custody  of  the  law,  and  he  had  in  fact  nothing 
wherewith  he  could  pay. 

It  would  seem  that  such  a  demand  would  be  more  satisfactory 
to  all  concerned  than  a  mere  formal  ceremony  of  a  demand  gone 
through  at  his  place  of  residence  during  the  maker's  absence. 
And  we  have  no  hesitation  in  declaring  the  demand  sufficient 
under  the  circumstances,  so  far  as  the  place  is  concerned,  to  charge 
the  defendant. 

We  are  aware  that  Byles  on  Bills,  196,  declares  that  a  demand 
made  on  the  street  is  not  sufficient.  Such  is  the  doctrine 
expressed,  too,  in  the  author's  notes  in  Leading  Cases  on  Bills, 
327,  328.  And  there  are  several  cases  containing  the  dictum  in 
general  terms  that  a  demand  must  be  made  either  at  the  maker's 
place  of  business  or  place  of  residence.  But  our  attention  has 
been  called  to  no  case,  neither  have  we,  after  considerable  research, 
been  able  to  find  any  wherein  the  court  having  the  question  before 
it  decided  adversely  to  a  demand  made  on  the  street,  under  cir- 
cumstances similar  to  those  in  this  case. 

On  the  other  hand,  Judge  Story,  in  discussing  the  law  appli- 
cable to  notes  like  this,  uses  the  following  language :  "The  general 
rule  is,  that  the  presentment  for  payment  may  be  made  to  the 
maker  personally,  or  at  his  dwelling  house  or  other  place  of  abode, 
or  at  his  counting  house  or  place  of  business.  It  seems  a  present- 
ment may  always  be  made  personally  to  the  maker,  wherever  he 
may  be  Jound,  although  he  may  not  be  either  at  his  domicil,  or  at 
his  place  of  business."  And  he  cites  quite  a  large  number  of 
cases,  in  a  note,  as  authority.    (Story  on  Prom.  Notes,  §  235). 

In  Edwards  on  Bills  (2  ed.),  150,  is  found  the  following: 
"Being  made  payable  at  large,  it  is  due  at  any  and  every  place ; 
but  for  the  purpose  of  charging  the  indorser,  it  must  be  presented 
for  payment  to  the  maker  personally,  or  at  his  residence  or  place 
of  business.  If  it  be  made  payable  at  a  particular  place  in  the  city, 
it  is  necessary  to  present  the  note  there  for  payment,  for  the  pur- 
pose of  charging  the  indorser.  But  even  in  this  case,  if  a  personal 
demand  is  made  upon  the  maker,  and  no  objection  is  made  by  him 
as  to  the  place,  it  is  sufficient." 

So  in  3  Kent's  Com.  128.  "Demand  of  payment  must  be 
made  by  the  holder  or  his  agent  upon  the  acceptor  at  the  place 
appointed  for  payment,  or  at  his  house  or  residence,  or  regular 


362  Where  Presentment  Should  be  Made 

known  place  of  his  moneyed  business,  or  upon  him  personally,  if 
no  particular  place  be  appointed."  And  again,  on  page  96,  "If 
demand  be  made  upon  the  maker  elsewhere  than  the  place 
appointed,  and  no  objection  be  made  at  the  time,  it  will  be  deemed 
a  waiver  of  any  future  demand." 
/  And  Prof.  Parsons  says:     "In  general  a  personal  demand 

(  would  be  sufficient,  if  made  at  any  place  where  the  maker  may 
)  reasonably  be  expected  to  be  in  condition  to  pay ;  and  if  made  in 
any  other  place — such,  for  instance,  as  in  the  street — it  would 
usually  be  good,  unless  objection  were  made  to  payment  because 
the  place  was  an  improper  one,  or  some  similar  reason  were  given 
for  the  refusal.  (1  Parsons  on  Notes  and  Bills,  421).  And  he 
uses  somewhat  similar  language  on  p.  372. 

The  doctrine  as  stated  above  by  Judge  Story  is  approved  in 
Taylor  v.  Snyder,  3  Denio,  145,  Sup.  Ct.  N.  Y.,  published  as  a 
leading  case  in  Leading  Cases  on  Bills,  313,  316. 

Finally,  our  own  court  held,  that  where  a  note  signed  by  two, 
made  payable  at  their  dwelling  houses,  was  demanded  of  them, 
together,  at  the  barnyard  of  one  of  them,  and  no  objection  was 
made  as  to  the  place  of  the  demand,  the  demand  was  sufficient. 
(Baldwin  v.  Farnsworth,  10  Maine,  414). 

2.  But  the  defendant  further  objecting  to  the  sufficiency  of 
the  demand  says :  "As  the  payer  has  a  right  to  require  its  delivery 
up  to  him  before  he  pays,  and  may  insist  that  the  holder  produce 
it,  the  note  should  have  been  exhibited." 

It  is  true  that  the  rule  requiring  the  person  making  the 
demand  to  exhibit  the  evidence  of  debt~is  well  settled,  and  welf 
grounded  in  reason ;  and,  although  applicable  to  all  written  con- 
tracts on  which  a  demand  is  necessary,  it  is,  as  has  been  well  said, 
especially  applicable  to  negotiable  securities,  which  may  be  legally 
transferred  to  another  at  the  very  time  the  original  payee  makes 
the  demand.  But  the  reasons  applicable  to  cases  in_which  the 
maker  offers  to  pay  cannot  apply  to  cases  in  which  he  not  only 
does_nqt  offer,  but  absolutely  fefusesTto  pay,  and  does  not  even 
express  any  desire  to  see  the  notE 

The  idle  ceremony  of  producing  the  note  when  the  maker 
unqualifiedly  refuses  to  pay  is  well  illustrated  by  C.  J.  Shaw,  in 
Gilbert  v.  Dennis,  3  Met.  497,  where  he  says :  "Even  under  the 
law  of  tender,  which  is  extremely  strict,  it  is  held  that  where  a 
party  to  whom  a  tender  is  to  be  made  declares  that  he  will  not 
accept  it,  an  actual  production  and  offer  of  the  money  is  not  nec- 
essary." 

The  case  finds  expressly  that  the  maker  had  the  note  in  his 


Gower  v.  Moore  363 

possession  when  he  made  the  demand.  We  think  the  objection 
cannot  prevail.  (Arnold  v.  Dresser,  8  Allen,  435 ;  Freeman  v. 
Boynton,  7  Mass.  485;  Etheridge  v.  Laid,  44  Barb.  69). 

3.  The  defendant  finally  contends  that  the  notice  having 
been  given  to  the  defendant  on  the  last  day  of  grace  was  prema- 
ture, for  the  reason  that  the  maker  had  the  whole  day  in  which  to 
pay. 

We  presume,  however,  that  the  defendant  predicated  this 
objection  upon  the  alleged  insufficiency  of  the  demand.  For  long 
before,  and  certainly  ever  since,  the  review  of  the  cases  by  C.  J. 
Shaw  in  Staples  v.  Franklin  Bank,  1  Met.  43,  the  rule  applicable 
to  notes  like  the  one  in  question  has  been  that  the  note  is  due  on 
actual  demand  at  any  such  hour  on  the  last  day  of  grace  that, 
having  regard  to  the  habits  and  usages  of  the  community  where 
the  maker  resides,  he  may  be  reasonably  expected  to  be  in  condi- 
tion to  attend  to  ordinary  business ;  and  if  upon  such  demand  pay- 
ment is  not  made,  the  maker  is  in  default,  and  notice  of  dishonor 
may  forthwith  be  given  to  the  indorser.  But  if  no  such  demand 
be  made,  and  the  maker  does  nothing  amounting  to  a  waiver,  he 
has  the  whole  of  the  day  in  which  to  make  payment,  and  is  not  in 
default  until  the  expiration  of  the  business  day  within  which  such 
demand  might  have  been  made.  (Greeley  v.  Thurston,  4  Greenl. 
479;  Flint  v.  Rogers,  15  Maine,  67;  Lunt  v.  Adams,  ij  Maine, 
230;  Farnsworth  v.  Allen,  4  Gray,  453  ;  Estcs  v.  Tower,  102  Mass. 
65;  Gordon  v.  Parmelee,  15  Gray,  413;  Manchester  Bank  v.  Fel- 
lows, 28  N.  H.  303;  Crosby  v.  Grant,  36  N.  H.  418). 

Defendant  defaulted. 
Appleton,   C.   J. ;   Cutting,   Dickerson,   Danforth,   and 
Peters,  JJ.,  concurred.  ^       vW— 

PRESENTMENT  WHERE  PERSON  PRIMARILY  LIABLE  IS  DEAD.      §  78. 

if-  Gower  v.  Moore  (1845),  25  Me.  16. 

The  suit  was  against  Moore,  as  indorser  of  a  note  given  by 
Robert  Witherspoon  to  him,  and  indorsed  by  the  defendant, 
dated  August  12,  1841,  and  payable  on  August  15,  1843. 

Witherspoon,  the  maker  of  the  note,  died  in  February,  1842  ; 
administration  was  taken  out  on  his  estate,  and  it  was  rendered 
insolvent;  one  Freeman,  then  the  holder  of  the  note,  proved  it 
before  the  commissioners  as  a  claim  against  the  estate,  and  noti- 
fied the  defendant,  after  the  death  of  Witherspoon  and  before 


364  Presentment  Where  Person  is  Dead 

the  note  became  payable,  that  the  maker  of  the  note  being  dead, 
he  should  look  to  the  defendant  for  payment ;  and  that  the  defend- 
ant, about  a  month  after  the  day  of  payment,  was  notified  by  the 
then  holder  of  the  note,  that  it  was  unpaid,  and  that  he  should 
look  to  the  defendant  for  payment. 

This  was  the  plaintiff's  case;  and  thereupon  Goodenow,  the 
district  judge  presiding,  directed  a  nonsuit.  To  this  the  plaintiff 
filed  exceptions. 

/.  C.  Woodman,  for  the  plaintiff. 
Dunn,  for  the  defendant. 

The  opinion  of  the  court  was  by 

Shepley,  J.  This  is  a  suit  by  the  indorsee  against  an  indor- 
ser  of  a  promissory  note,  made  on  August  12,  1841,  and  payable 
in  two  years.  Before  it  became  payable  the  maker  had  deceased, 
an  administrator  had  been  appointed,  the  estate  had  been  repre- 
sented to  be  insolvent,  commissioners  of  insolvency  had  been 
appointed  and  the  holder  of  the  note  had  proved  it  before  them. 
When  the  maker  of  a  note  dies,  before  it  becomes  payable,  the 
holder  should  make  inquiry  tor  his  personal  representative,  if 
there  be  one,  and  present  the  noteTon  its  maturity  to  him  for 
payment-"  The  case  oCHale  v.  Burr,  12  Mass.  R.  86,  may  be  con- 
"sidered  as  presenting  an  exception  to  this  rule ;  but  doubts  have 
been  expressed,  whether  it  could  be  considered  as  either  correct 
in  principle,  or  founded  upon  sufficient  authority. 

In  this  case  the  indorser  may  be  considered  as  knowing,  that 
the  note  would  not  be  paid  on  presentment ;  and  that  the  estate 
was  insolvent.  But  such  knowledge  does  not  relieve  the  holder 
from  his  obligation  to  make  presentment  and  give  due  notice  of 
its  dishonor.  The  promise  of  the  indorser  is  a  conditional  one 
to  pay,  if  the  note  be  duly  presentecTto  the  maker  and  seasonable 
jiotice  be  given  to  him  of  its  dishonor. 

The  holder  connot  assume  the  right  to  decide,  that  his  per- 
formance of  the  condition  will  be  of  no  service  to  the  indorser, 
and  thus  put  that  matter  in  issue  to  relieve  himself  from  the 
performance  of  the  condition  imposed  upon  him  by  law.  (Nichol- 
son v.  Gouthit,  2  H.  Bl.  609;  Clegg  v.  Cotton,  2  B.  &  P.  239; 
Prideaux  v.  Collier,  2  Starkie's  R.  57) . 

The  various  relations,  which  the  parties,  whose  names  are 
upon  negotiable  paper,  sustain  towards  other  persons,  whose 
names  are  not  upon  it,  cannot  be  anticipated. 

The  real  debtors,  who  may  feel  obliged  to  pay,  may  not  wish 
to  exhibit  themselves  as  such.     A  deceased  party  may  possibly 


Fourth  National  Bank  v.  Heuschen  et  al.  365 

have  held  a  contract  of  some  responsible  person  to  pay  in  case 
the  note  should  be  duly  presented  for  payment.  So  may  an 
indorser.  To  hold  an  indorser  liable  and  yet  deprive  him  of  the 
benefit  of  such  a  contract  could  not  be  justified.  It  is  best  for  a 
commercial  community  that  the  rules  be  simple,  subject  to  few 
exceptions,  and  not  liable  to  be  varied  to.  meet  the  apparent 
injustice  of  particular  cases.  The  notices  given  to  the  defendant 
in  this  case  were  either  too  early  or  too  late  to  be  of  any  avail. 

Exceptions  overruled. 


V 


presentment  to  partners.  §  79. 

Fourth  Nat.  Bank  v.  Heuschen  ct  al.  (76*75),  52  M°-  207- 
Appeal  from  St.  Louis  Circuit  Court. 

Hitchcock,  Litbke  and  Player,  for  appellants. 
Finkelnburg  and  Rassieur,  for  respondent. 

Adams,  Judge,  delivered  the  opinion  of  the  court. 

This  was  an  action  on  a  negotiable  promissory  note,  by  the 
plaintiffs,  as  holders  for  value  before  maturity,  against  the  makers 
and  indorsers. 

The  note  was  made  by  a  partnership  composed  of  the  defend- 
ants, Frederick  W.  Heuschen,  Frederick  Krite  and  Frederick 
Perschbacker,  whose  firm  name  was  ''Heuschen,  Krite  &  Co." 
It  was  executed  to  the  defendant,  John  H.  Schaales,  who  indorsed 
the  same  to  Wilhelm  Ricke,  and  Ricke  to  the  defendant,  Frederick 
W.  Heuschen,  and  he  to  the  plaintiff. 

At  the  close  of  the  evidence  the  plaintiff  asked  the  following 
instructions,  which  were  refused  by  the  court  and  exceptions  duly 
saved : 

"i.  The  court  declares  the  law  to  be  that  service  of  notice 
of  protest  by  a  notary,  through  the  hands  of  a  clerk,  is  sufficient 
to  charge  the  indorsers,  and  the  notarial  certificate  verified  by 
affidavit  is  evidence  of  such  service." 

'(&)  If  the  court,  sitting  as  a  jury,  believe  from  the  evidence 
that  at  the  maturity  of  the  note  it  was  placed  in  the  hands  of  a 
notary  public  who  during  business  hours  of  that  day  presented 
the  same  for  payment  at  a  place  of  business  bearing  the  sign 
of  Heuschen,  Krite  &  Co.,  a  place  where  said  firm  had  been  doing 
business  for  several  years  and  which  a  person  in  charge  thereof 
then  and  there  represented  as  the  place  of  business  of  Heuschen, 


366  Presentment  to  Partners 

Krite  &  Co.,  to  which  place  plaintiff  had  been  directed  by  one  of 
the  partners  as  their  place  of  business  about  ten  days  previously, 
and  which  the  same  partner  designated  to  the  notary  as  their 
place  of  business  on  the  day  of  maturity,  and  that  furthermore 
said  notary  presented  said  note  for  payment  to  F.  W.  Heuschen, 
a  member  of  said  firm,  in  person  on  the  same  day,  then  there  was 
sufficient  demand  to  charge  the  indorsers  although  the  court 
may  believe  that  a  dissolution  of  said  firm  had  in  fact  taken  place 
previous  to  the  maturity  of  said  note." 

The  court  then  at  the  instance  of  the  defendants  and  against 
the  objections  of  the  plaintiff  gave  the  following  declaration: 

"If  the  makers  of  the  note  sued  on  in  this  cause  had  a  place 
of  business  in  the  city  of  St.  Louis,  but  the  individuals,  or  either 
of  them,  composing  the  firm  of  Heuschen,  Krite  &  Co.,  resided 
in  the  said  city  of  St.  Louis,  it  was  the  duty  of  the  notary  to 
demand  payment  of  said  note  of  the  makers  thereof  or  either  of 
said  makers  or  at  their  place  of  residence  or  the  place  of  business 
of  any  one  of  them." 

The  case  had  been  submitted  for  trial  to  the  court  sitting  as 
a  jury,  and  when  the  court  refused  the  plaintiff's  instructions 
and  allowed  those  of  defendants,  the  plaintiff  took  a  nonsuit  and 
by  leave  moved  to  set  it  aside,  which  motion  being  overruled  he 
appealed  to  general  terms  when  the  judgment  at  special  term 
was  reversed  and  the  cause  remanded,  and  the  defendants  have 
appealed  to  this  court. 

On  the  trial  at  special  term  the  plaintiff  gave  evidence  tend- 
ing to  prove  the  facts  as  set  forth  in  the  second  instruction,  but 
failed  to  give  any  evidence  in  regard  to  the  notice  by  the  notary's 
clerk,  and  it  will  be  unnecessary  to  pass  upon  the  plaintiff's  first 
instruction.  The  bill  of  exceptions  shows  that  there  were  two 
similar  cases  tried  by  the  court  at  the  same  time  and  the  first 
instruction  may  have  had  reference  to  the  other  case. 

The  indorsers  of  a  negotiable  note  are  only  liable  in  case  due 
diligence  has  been  used  to  make  a  demand  of  payment  from  the 
makers  and  due  notice  given  to  them  in  case  the  note  is  dis- 
honored. 

Where  the  facts  are  agreed  on,  due  diligence  in  making  a 
demand  is  a  question  of  law ;  but  when  the  facts  are  not  agreed 
on,  the  question  of  due  diligence  becomes  a  mixed  question  of 
law  and  fact.  That  is,  the  jury  are  to  find  the  facts  and  the 
court  is  to  pronounce  the  law  upon  the  facts  as  they  may  be 
found  by  the  jury.  The  usual  way  is  to  state  in  the  instruction 
hypothetically  the  facts  to  be  found  from  the  evidence  by  the 


Arnold  v.  Dresser  367 

jury,  and  to  pronounce  upon  those  facts  so  to  be  found,  the  con- 
clusion of  law  resulting  therefrom.  This  mode  was  pursued  in 
the  second  instruction  asked  by  the  plaintiff.  The  evidence 
strongly  tended  to  prove  the  facts  as  hypothetically  put  in  that 
instruction.  Those  facts,  if  found  to  be  true,  in  my  judgment,  as 
a  matter  of  law,  constituted  due  diligence  in  making  a  demand 
of  payment  on  the  makers  of  the  note  so  as  to  fix  their  responsi- 
bility so  far  as  such  demand  was  necessary.  A  personal  demand 
of  payment  on  one  of  the  parties  wassufficient,  although  such 
demand  niay  have  been  made  after  the  dissolution  of  the  firm"7 
or  a  demand  made  in  good  faith  at  the  late  place  of  business  of 
su^h_firm,  made  on  information,  whether  true  or  false,  received 
from  a  member  of  the  firm  that  such  place  was  the  proper  place 
to  make  the  demand,  would  constitute  due  diligence.  A  partner- 
ship, although  dissolved,  must  be  treated  as  still  in  existence  so 
far_as  the  question  of  demand,  protest  and  notice  is  concerned^ 
and_th~e^cts  of  one  partner  in  such  case  must  be  considered  as 
binding  on  air  the  others.  Therefore  the  facts  indicated  in  plain- 
tiff's  second  instruction  constituted  not  simply  due,  but  extra- 
ordinary diligence  in  making  demand  of  payment  of  the  makers 
of  the  note. 

The  instructions  given  at  the  instance  of  the  defendants  did 
not  cover  the  whole  case  as  made  by  the  plaintiff.  The  plaintiff 
had  the  right  to  have  his  case  as  made  by  the  evidence  presented 
by  a  proper  instruction. 

The  judgment  at  General  Term  will  therefore  be  affirmed. 
The  other  iudges  concur.  t>  q     , 


PRESENTMENT  TO  JOINT  DEBTORS.  §  80. 

Arnold  v.  Dresser  (1864),  8  Allen  (Mass.)  435. 

Contract  against  the  indorser  of  a  joint  promissory  note. 

At  the  trial  in  the  superior  court,  before  Morton,  J.,  it 
appeared  that  on  the  day  when  the  note  became  due,  Theodore 
S.  Stratton,  in  behalf  of  the  plaintiff,  demanded  payment  thereof 
of  the  two  promisors,  but  did  not  have  the  note  in  his  possession 
at  the  time;  and  the  note  was  not  paid.  The  plaintiff  testified 
that  on  the  same  day  he  called  upon  the  defendant,  and  gave 
notice  to  him  that  demand  had  been  made  on  the  makers ;  that 


368  Presentment  to  Joint  Debtors 

one  of  the  makers  called  during  the  interview,  and  both  he  and 
the  defendant  said  that  the  note  should  be  paid  soon. 

Upon  this  evidence,  the  judge  ruled  that  the  plaintiff  was  not 
entitled  to  recover,  and  directed  a  verdict  for  the  defendant, 
which  was  accordingly  rendered,  and  the  plaintiff  alleged  excep- 
tions. 

H.  IV.  Bishop,  for  the  plaintiff. 
/.  E.  Field,  for  the  defendant. 

Bigelow,  C.  J.  The  defendant  is  not  liable  as  indorser  of 
the  note  declared  on.  ~ In  order  to  char^tTrlim  it  was  necessary 
Tor  the  plaintiff  to  show_due  presentment  and  demand  of  the  note 
orTboth  the  promisors^Uiiiion  Bank  of  Weymouth,  &c.  v.  Willis, 
8  Met.  504;  or  a  waiver  thereof  by  the  defendant.  There  were 
no  such  presentment  and  demand.  If  a  note  is  made  payable  at 
a  particular  place,  the  holder  must  have  it  at  that  place  on  the  day 
of  its  maturity,  in  order  to  make  due  presentment ;  if  it  is  not 
payable  at  a  designated  place,  the  note  must  be  presented  to  the 
promisor  at  his  usual  place  of  business  or  at  his  dwelling  house. 
But  no  valid  presentment  and  demand  can  be  made  by  any  person 
without  having  the  note  in  his  possession  at  the  time,  so  that  the_ 
maker  may_  receive  it  in  case  he~pays  the  amount  dueL  unless 
specialcircumstances,  such  as  the  loss  of  the  note  or  its  destruc- 
tion, are  shown  to  excuse  its  absence.  (Shaw  v.  Reed,  12  Pick. 
132;  Freeman  v.  Boynton,  7  Mass.  483). 

Nor  was  there  any  waiver  of  due  demand  by  the  defendant. 
No  such  waiver  is  niade.  where  an  indorser  promises  to  pay  the 
note  in  ignorance  of  the  fact  that  he  has  been  discharged  by  the 
laches  of  the  holder,  in  not  making  due  demand  of  the  promisor, 
or  where  such  promise  is  made  under  a  misapprehension  or  mis- 
take of  facts  concerning  the  due  presentment  and  demand  of 
the  note.  (Low  v.  Howard,  11  Cush.  268;  Kelley  v.  Brown,  5 
Gray,  108).  In  the  case  at  bar,  the  defendant  made  the  statement 
on  which  the  plaintiff  relies  to  show  a  waiver,  not  only  in  igno- 
rance of  the  fact  that  the  note  had  not  been  duly  demanded  of  one 
of  the  promisors,  but  under  a  mistaken  belief  that  it  had  been  so 
demanded,  induced  by  the  false  statement  to  that  effect  made  to 
him  by  the  plaintiff.  Exceptions  overruled. 


y*~  <H> 


Sussex  Bank  v.  Baldwin  et  al.  369 


PRESENTMEN1   BY  WHOM.  §74- 

Sussex  Bank  v.  Baldwin  et  al.  (1840),  17  N.  J.  L. 

See  §§96,  104-107. 

Armstrong  and  Williamson,  for  rule. 
J.  IV.  Miller  and  P.  D.  Vroom,  contra. 

Dayton,  J.  This  case  was  tried  at  the  Sussex  Circuit  of 
May,  A.  D.  1838,  and  verdict  had  for  the  plaintiff.  Sundry  rea- 
sons are  now  relied  upon  to  set  the  same  aside,  and  I  will  consider 
them  in  their  order. 

The  defendants  are  the  indorsers  of  a  promissory  note  made 
by  Conrad  Teese,  October  24,  1836,  for  five  hundred  and  five 
dollars  and  sixty-one  cents,  payable  six  months  after  date  to  the 
order  of  Wm.  A.  Baldwin  &  Co.,  (the  defendants)  and  by  them 
indorsed  to  the  plaintiff.  The  first  reason  assigned  is,  that  the 
note  was  not  duly  presented  to  the  maker,  for  payment.  That  it 
was  presented  at  an  improper  place,  to  wit,  the  office  of  Teese, 
the  maker,  and  by  an  improper  person,  to  wit,  one  Dennis,  who 
swears  that  he  acted  as  the  clerk  and  under  the  directions  of 
Wm.  Tuttle,  who  was  himself  merely  the  agent  of  James  Hedden, 
the  notary  public. 

As  to  the  place  of  presentment,  the  objection  may  be  disposed 
of  very  briefly.  It  is  a  point  not  properly  arising  under  the  evi- 
dence in  the  case.  Dennis,  the  witness,  swears  that  Teese,  the 
maker  of  the  note  told  him,  Dennis,  to  present  his  notes  for  pay- 
ment at  that  place,  and  that  he  had  been  in  the  habit  of  doing  so. 
This  estops  Teese  from  objecting  to  the  place  of  presentment; 
and  that  which  is  good  against  the  drawer,  is  good  against  the 
indorser.  {State  Bank  v.  Hurd,  12  Mass.  172;  Whitwell  v.  John- 
son, 17  Mass.  R.  449).  But  it  is  thought  advisable  that  this  point 
be  put  at  rest  in  this  state,  by  an  expression  of  opinion  by  this 
court. 

It  appears  by  the  evidence,  that  the  office  in  question  was  the 
regular  place  of  business  of  the  maker ;  and  I  have  no  doubt 
where  a  person  has  an  office  or  known  and  settled  place  of  busi- 
ness for  the  transaction  of  his  moneyed  concerns — whether  he  be 
a  banker,  broker,  merchant,  manufacturer,  mechanic,  or  dealer  in 
any  other  way,  a  presentment  and  demand  at  that  place,  (as  well 
as  a  presentment  and  demand  at  his  residence)  is  good  in  lawT 
It  must  not,  however,  be  a  place  selected  and  used  temporarily  for 
the  transaction  of  some  particular  business,  as  settling  up  some 


370  Presentment  by  Whom 

old  books  or  accounts  merely,  but  bis  regular  and  known  place 
of  business  for  tlie  transaction  of  his  moneyed  concerns.  The 
counting  room  of  a  banker  or  merchant,  may  be  a  proper  place 
for  a  demand,  though  the  manufactory  or  work  shop  would  not. 
Yet  if  the  manufacturer  or  mechanic  have  an  office,  or  known 
place  of  business  for  the  purpose  aforesaid,  a  good  demand  may 
be  made  there.  (Bank  of  Columbia  v.  Lawrence,  i  Peters,  582; 
Williams  v.  The  Bank  of  U.  States,  2  Peters,  100;  Byles  on  B. 
118;  State  Bank  v.  I  hud.  12  Mass.  173). 

Nor  is  there  any  thing  in  the  objection  that  the  presentment 
was  made  by  an  improper  person.  It  appears  by  the  evidence 
that  Tuttle  did  the  business  of  Hedden,  the  notary  public,  and  it 
must  have  been  with  the  consent  and  knowledge  of  the  Bank,  that 
he  employed  and  directed  Dennis,  who  was  his  clerk,  to  present 
the  note  in  question  to  the  drawers,  and  put  him  in  possession 
of  the  note  for  that  purpose.  If  the  note  had  been  paid  on  pre- 
sentment, he  could  and  would  have  delivered  it  up  to  the  drawers, 
and  that  would  have  exonerated  them  from  further  liability.  An 
authority  to  make  a  demand,  may  be  created  by  parol,  and  the  mere 
possession  oT  the  paper,  is  evidence  enough  of  such  authority.  ("3* 
Kent  L.,  108 ;  Bank  ofUtica  v.  Smith,  18  J.  R.  230;  Shed  v.  Brett, 
1  Pick.  401  ;  Morris  v.  Foreman,  1  Dal.  193  ;  Freeman  and  others 
v.  Boynton,  7  Mass.  487). 

There  is  an  impression  current  in  some  degree,  even  with  the 
bar.  that  a  presentment  of  a  note,  must  be  by  a  notary,  or  at 
least  on  his  behalf,  and  that  he  must  protest  it  upon  non-payment, 
before  the  indorser  is  liable.  But  this  is  not  so.  The  record  of 
a  demand  and  notice  &c.  by  a  notary,  entered  in  his  book,  accord- 
ing to  our  statute,  of  21st  February,  1829,  Harr.  C.  249,  may 
serve  to  refresh  his  memory,  or  in  case  of  his  absence  or  death, 
it  may  be  used  as  evidence  of  the  facts  contained  in  it;  but  such 
demand  and  protest  by  a  notary,  are  not  essential  to  a  recovery 
against  the  indorser.  It  was  not  so  by  the  common  or  commer- 
cial  law,  nor  is  it  required  by  our  statute.  If  a  notary  act  in 
the  premises,  and  make  the  protest,  although  sanctioned  by  gen- 
eral custom,  it  is  not  strictly  an  official  act.  (Nichols  v.  Webb, 
8  Wheat.  326;  3  Kent  C.  93-4;  1  Saund.  on  PI.  &  Ev.  295). 

Any  person  may  present  at  its  maturity,  a  promissory  note  of 
which  he  is  put  in  possession,  and  if  paid  in  the  ordinary  course 
of  business,  and  taken  up.  the  payment  is  good  ;  and  if  not  paid, 
the  demand  is  good  as  a  groundwork  for  notice  to  the  indorsers,' 
and  that  without  any  protest.  The  rule  is  otherwise  as  to  fjojejgn" 
bills  of  exchange,  which  must  be  protested  by  a  notary,  and  their 


Sussex  Bank  v.  Baldwin  et  al.  371 

official  seal  is  plenary  evidence  in  all  foreign  courts  and  countries, 
of  the  dishonor  of  the  bill,  (vide  cases  above  cited). 

2.  The  next  objection,  is  to  the  notice  to  the  indorsers. 
The  name  of  James  Hedden,  the  notary  public,  was  printed  at  the 
foot  of  the  notice,  not  written;  and  this  is  assigned  for  error. 
There  is  nothing  in  this  objection.  The  law  prescribes  no  form 
of  notice,  its  object  is  merely  to  apprise  the  party  of  the  non- 
payment—to put  him  upon  inquiry,  that  he  may  protect  his  rights. 
This  is  as  well  done  by  a  notice  with  a  printed,  as  with  a  written 
name. 

The  signature  of  the  notary,  would  carry  with  it  in  a  large 
majority  of  cases,  no  higher  degree  of  certainty  than  the  printed 
name,  for  it  must  in  most  cases  be  unknown  to  those  to  whom 
notices  are  sent.  The  notice  in  this  case,  came  from  a  proper 
source,  and  stated  the  proper  facts ;  that  is  enough.  It  is  needless 
to  cite  authorities  upon  this  point. 

3.  The  next  objection  is,  that  the  notice  was  not  sent  in 
proper  time. 

The  Sussex  Bank  was  the  owner  of  the  note,  and  had  sent  it 
indorsed  to  the  Newark  Bank  for  collection.  The  demand  of 
payment  was  made  on  Teese,  the  maker,  at  Newark,  where  he 
resided  on  the  27th  April.  1837,  and  on  the  same  day,  notice  of 
non-payment  was  directed  to  S.  D.  Morford.  the  cashier  of  the 
Sussex  Bank,  at  Newton.  In  this  notice  to  Morford.  was 
inclosed  another  directed  to  the  defendants  in  this  suit,  with  the 
name  "James  Hedden,  notary  public,"  printed  thereto,  and  none 
other.  It  appeared  that  Tuttle,  who  forwarded  the  notices  for 
the  notary,  did  not  know  that  the  defendants  resided  in  Newark, 
but  supposed  them  to  reside  in  Sussex.  Morford  swears  that  on 
the  notice  thus  directed  to  the  defendants,  he  wrote  "Newark, 
New  Jersey,"  and  "thinks  he  sent  it  by  the  next  mail."  But 
upon  cross  examination,  he  said  "he  distinctly  recollected  putting 
the  notice  of  protest  directed  to  the  defendants  into  the  postoffice 
at  Newton,  but  could  not  recollect  at  what  time  he  did  so.  Could 
not  tell  precisely  what  was  at  that  time  the  course  of  mail  between 
Newton  and  Newark,  but  thought  that  it  was  carried  each  way, 
three  times  a  week."  And  upon  a  re-examination,  he  said  "he 
seldom  received  such  notices,  but  when  he  did,  was  in  the  habit 
of  sending  them  by  the  next  mail :  that  he  had  no  doubt  he  put 
the  notice  for  the  defendants,  into  the  postoffice  at  Newton,  the 
day  after  he  received  it,  but  could  not  say  whether  it  zcas  in  time 
for  the  next  mail."  And  upon  tin's  branch  of  the  case,  the  judge 
charged  the  jury,  that  if  Mr.  Morford.  the  cashier,  placed  the 


372  Presentment  by  Whom 

notice  in  the  postoffice,  directed  to  the  defendants,  on  the  day 
after  he  received  it,  it  was  sufficient  and  legal  evidence  of  notice  to 
the  defendants. 

It  is  admitted  that  every  bona  fide  indorser  who  may  receive 
a  notice  of  non-payment,  has  a  day  to  notify  his  immediate 
indbrser;  but  it  is  contended  that  this  rule  extends  only  to  real 
holders  and  indorsers,  not  to  such  as  are  mere  agents.  That  the 
Sussex  Bank  had  no  right  by  appointing  the  Newark  Bank  its 
agent,  to  extend  the  time  allowed  it  by  law  for  notifying  the 
indorsers,  of  the  non-payment  of  the  note  really  held  and  owned 
by  it.  It  would  appear  reasonable  that  the  holder  of  a  note  should 
not  for  his  own  accommodation,  thus  vary  the  rights  of  an 
indorser:  but  the  authorities  grounded  I  presume  upon  commer- 
cial convenience,  are  the  other  way. 

It  has  long  been  settled  that  a  banker  who  holds  a  bill  for  a 
customer,  is  entitled  to  a  day  to  give  him  notice,  and  the  cus- 
tomer orjprincipal  is  entitled  to  another  day  to  give  his  indorser 
notice ;  Firth  v.  Thursh,  1 5  Eng.  C.  L.  244-5 ;  Robson  v.  Bennett, 
2  Taunt.  388;  Haynes  v.  Birks,  3  Bos.  &  P.  599;  Longdate  v. 
Trimmer,  15  East,  291 ;  Bray  v.  Hadiven,  5  M.  &  S.  68;  Scott  v. 
Lifford,  9  East,  347 ;  Daly  v.  Slatter,  4  Carr.  and  P.  200 ;  but  in 
this  last  case,  certain  points  were  reserved,  for  which,  see  case; 
and  the  same  principle  is  laid  down  in  Mead  v.  Engs,  5  Cowen, 
303,  where  it  is  held  that  one  to  whom  a  bill  or  note  has  been 
indorsed  merely  as  agent  to  collect,  (e.  g.  a  bank)  is  considered 
as  a  holder  for  the  purpose  of  giving  and  receiving  notice  of  non- 
payment. See  also,  Colt  v.  Noble,  5  Mass.  167;  Tunno  v.  Lague, 
2  J.  C.  1.  It  was  said  on  the  argument  that  no  case  could  be 
found  where  this  rule  had  been  applied  unless  the  notice  was  from 
one  indorser  notifying  another;  and  that  in  the  case  now  under 
consideration,  the  notice  was  not  from  the  Sussex  Bank,  which 
was  the  indorser,  but  from  the  notary  public  of  the  Newark  Bank, 
whose  name  was  attached  to  it.  Admitting  this  for  the  sake  of 
argument  to  be  so,  yet  the  case  of  Tunno  v.  Lague,  lays  down 
the  rule  (which  is  founded  in  reason  too)  that  if  the  agent  under- 
takes to  give  notice  to  the  other  indorsers,  as  well  as  his  principal, 
the  notice  will  be  good  if  given  as  early  as  it  could  have  been 
received  from  the  principal.  If  therefore  this  is  to  be  considered^ 
a  notice  from  the  notary,  and  not  from  the  Sussex  Bank,  it  is 
good  if  given  as  early  as  the  Sussex  Bank  was  bound  to  give  it 
But  admitting  this  to  be  so,  an  important  question  yet  remains. 
Was  the  notice  in  time,  supposing  it  to  have  come  from  the 
Sussex  Bank?     There  is  nothing  wherein  greater  strictness  is 


Sussex  Bank  v.  Baldwin  et  al.  373 

required,  than  upon  this  point.  It  is  laid  down  that  notice  of 
non-payment,  cannot  be  left  to  inference;  without  pnsiti-np  proof, 
(Chitty  on  B.  314;  Assignees  of  Schiffner  v.  Sherwood,  2  Eng. 
C.  L.  R.  405). 

There  is  certainly  no  positive  proof  that  the  letter  containing 
the  notice  of  non-payment  was  put  in  the  postoffice  for  the 
defendants,  in  time  for  the  mail  of  the  day  next  after  it  was 
received  by  the  Sussex  Bank.  Morford  says  in  substance,  that  he 
thinks  he  sent  the  letter  by  the  next  mail;  but  upon  a  further 
examination,  he  says  he  does  not  recollect  the  course  of  the  mails 
at  that  time,  and  although  he  has  no  doubt  he  mailed  it  next  day, 
he  cannot  say  whether  it  was  in  time  for  the  mail.  There  is 
therefore  no  positive  proof  of  that  fact,  and  we  cannot  infer  it. 
Nor  was  it  even  submitted  as  a  question  of  fact  to  the  jury ;  on 
the  contrary  the  charge  of  the  court  was,  that  the  indorser  had 
the  entire  day  to  put  the  notice  in  the  postoffice,  without  reference 
to  departure  of  the  mail. 

Does  the  law  require  that  the  notice  be  put  in  the  postoffice 
in  time  for  the  mail  of  the  day  next  after  the  indorser  receives 
it,  or  has  he  the  whole  of  that  day  to  prepare  it  ? 

Kent  in  his  commentaries,  3  Vol.,  p.  105,  says,  the  modern 
doctrine  is,  that  the  notice  must  be  given  by  the  first  direct  and 
regular  conveyance;  meaning  thereby  ''the  first  convenient  and 
practicable  mail  that  goes  on  the  day  next  to  the  third  day  of 
grace ;  so  that  if  the  third  day  of  grace  be  on  Thursday,  and  the 
drawer  or  indorser  reside  out  of  town,  the  notice  may  indeed  be 
sent  on  Thursday,  but  must  be  sent  by  the  mail  that  goes  on  Fri- 
day." Kent  says  in  a  note,  that  the  case  of  Haivkes  v.  Salter,  4 
Bing.  715,  is  a  relaxation  of  the  strictness  of  that  rule;  and  yet 
that  case  does  not  appear  on  examination,  to  militate  against  the 
general  rule  that  the  notice  must  go  by  the  first  convenient  and 
practicable  mail,  on  the  day  next  after  the  third  day  of  grace. 
In  the  case  of  Hawkes  v.  Salter,  the  notice  should  have  been  sent 
on  Monday,  but  the  only  mail  on  Monday  went  out  at  half  past 
nine  in  the  morning,  and  one  of  the  grounds  taken  was  that  the 
party  was  not  bound  to  get  up  at  an  unseasonable  hour,  to  send 
his  notice.  The  court  held  that  notice  sent  on  Tuesday  morning 
was  in  time.  The  general  principle  undoubtedly  is,  that  a  party 
is  bound  to  exercise  reasonable  diligence  only,  not  excessive.  If 
therefore  the  only  mail  of  the  day,  leave  at  an  early  hour  in  the 
morning — before  a  party  in  the  exercise  of  reasonable  diligence 
could  mail  his  notice,  he  may  properly  send  it  by  the  next  oppor- 
tunity.    The  case  of  Firth  v.  Thursh,  8  B.  and  Cress.  387,  was 


374  Presentment  by  Whom 

decided  on  entirely  different  grounds :  an  attorney  after  receiving 
information  of  the  indorser's  place  of  residence,  was  allowed  in 
that  case  one  day  to  consult  his  principal,  upon  the  ground  that 
he  stood  in  the  light  of  a  banker  who  holds  paper  for  his  prin- 
cipal. These  cases  of  relaxing,  cannot  be  considered  as  conflicting 
with  the  general  rule  laid  down  by  Kent.  In  Lenox  v.  Roberts, 
2  Wheat.  373 ;  Chief  Justice  Marshall,  in  delivering  the  opinion 
of  the  court,  says  ''a  demand  of  payment  should  be  made  on  the 
last  day  of  grace,  and  notice  of  the  default  of  the  maker,  be  put 
in  the  postoffice  early  enough  to  be  sent  by  the  mail  of  the 
succeeding  day."  The  same  point  substantially  was  ruled  in  The 
U.  States  v.  Adm'x.  of  Barker,  4  Wash.  C.  C.  R.  464;  Mead  v. 
Engs,  5  Cowen,  303 ;  Bank  of  Alexandria  v.  Swann,  9  Peters,  45  ; 
and  in  Whitwcll  v.  Johnson,  ly  Mass.,  454,  it  was  ruled  that  if 
there  be  two  mails  on  the  day  after  the  note  falls  due,  it  is  good 
if  the  notice  go  by  either  of  them. 

The  English  cases,  more  particularly  those  of  a  late  date,  are 
to  the  same  point.  In  Smith  v.  Mullet,  2  Camp.  208,  the  same 
rule  was  applied  between  indorsers.  The  fourth  indorser  having 
received  notice  of  non-payment,  on  the  20th  of  the  month,  he 
mailed  a  notice  to  his  immediate  indorser,  on  the  evening  of  the 
21st,  but  so  late  that  it  was  not  delivered  until  the  morning  of  the 
22d.  This  was  held  by  Lord  Ellenborough  to  discharge  not  only 
the  defendant,  but  the  other  indorsers,  although  they  actually 
received  notice  of  the  dishonor  during  the  day  of  the  22d ;  and  it 
was  said  that  although  a  party  has  an  entire  day,  yet  he  must  send 
his  letter  within  post-time  of  that  day.  That  if  he  retain  it 
until  atter  the  mail  is  gone,  he  might  just  as  well  retain  it  until 
the  next  day :  the  consequence  is,  that  an  entire  day  is  lost. 

The  opinion  of  Chief  Justice  Abbott,  in  Geill  v.  Jeremy  and 
Blagg,  1  Moody  and  M.  225 ;  as  cited  and  reported  in  Chitty  on 
B.  7  Am.  Ed.  316;  is  but  a  reiteration  of  the  same  rule.  He  says 
it  is  well  settled,  that  a  party  who  receives  notice  of  the  dishonor 
of  a  bill,  is  not  bound  to  forward  notice  to  the  prior  party,  till  the 
next  day,  and  it  then  suffices  if  he  puts  a  letter  in  the  post  on 
any  following  day,  so  that  it  be  forwarded  by  the  next  practicable 
post.  See  this  case  22  Eng.  C.  L.  R.  249;  or  M.  and  M.,  61, 
not.  (  ?)  225.  See,  also,  Hilton  v.  Fairclough,  2  Camp.  633 ;  Wil- 
liams v.  Smith,  2  B.  and  A.  500;  Byles  on  B.  160. 

It  would  certainly  simplify  this  matter  to  lay  down  the  rule, 
that  a  party  has  the  next  day  entire  to  prepare  and  mail  his  notice, 
without  reference  to  the  time  of  the  departure  of  the  mail.  But 
this  would  be  in  violation  of  the  authorities  and  against  the  gen- 


Sussex  Bank  v.  Baldwin  et  al.  375 

eral  principle  which  requires  the  exercise  of  at  least  reasonable 
diligence.  Many  of  the  authorities  say,  the  party  has  an  entire 
day  to  give  the  notice ;  and  so  he  has,  but  not  an  entire  day  to  pre- 
pare it.  He  must  give  or  send  his  notice  on  the  next  day  if  he 
can;  if  he  neglect  it,  until  after  the  departure  of  the  mail,  he 
does  not  give  or  send  his  notice  the  next  day,  but  in  point  of 
fact,  the  day  after  the  next,  or  at  some  other  and  perhaps  more 
distant  day.  It  is  safe  therefore  to  adhere  to  the  rule,  that  the 
notice  must  be  sent  on  the  day  next  after  the  third  day  of  grace, 
unless  the  mail  of  that  day  go  out  at  so  early  an  hour  as  to  render 
it  impracticable  by  the  exercise  of  a  reasonable  diligence,.  (4 
Bing.  715;  1  Mood  P.  750;  5  M.  and  S.  68;  2  B.  and  A.  501). 
No  precise  hour  can  be  named,  particularly  in  the  country,  where 
the  term  "business  hours,"  has  a  somewhat  vague  and  indefinite 
meaning.  Cases  will  occassionally  arise,  where  it  will  become 
necessary  for  the  court  to  direct  the  jury  whether  due  diligence 
has  been  exercised,  supposing  certain  facts  to  be  proved.  (Aymcr 
v.  Beers,  7  Cowen,  705 ;  Bank  of  Columbia  v.  Lawrence,  1  Peters, 

578). 

Applying  the  above  rule  to  the  evidence  in  this  case,  the 
plaintiff  ought  not  to  recover ;  it  certainly  is  not  shown  that  the 
notice  was  sent  the  next  day  after  it  was  received.  It  was  mailed, 
but  whether  in  time  for  the  post,  the  witness  does  not  pretend  to 
say,  and  that  is  a  fact  which  he  must  make  out.  The  importance 
of  sustaining  this  rule,  is  evident  from  the  facts  of  this  case.  The 
mail  between  Newton  and  Newark,  being  only  tri-weekly,  if  the 
letter  were  mailed  after  the  post  left,  it  was  not  one  day  only 
lost,  but  two  or  perhaps  three.  The  charge  of  the  court  upon 
this  point  was  clearly  erroneous ;  and  for  this  reason,  if  there 
were  no  other,  the  verdict  must  be  set  aside,  unless  there  has  been 
a  waiver  of  notice,  on  the  part  of  the  defendants,  as  is  contended. 

Mr.  Morford  swears  "that  a  week  or  two  before  the  note  of 
Teese  came  due,  he  received  a  private  letter  from  Baldwin,  one 
of  the  defendants,  in  which  he  (Baldwin)  stated  that  Teese  could 
not  pay  it,  and  requested  to  have  it  renewed."  John  Young, 
another  witness,  swears  that  Baldwin  "handed  him  a  note  of 
Conrad  Teese,  indorsed  by  the  defendants,  and  wished  him  to 
try  and  get  the  plaintiff  to  take  it  in  renewal  of  a  note  they  then 
held:  he  (Baldwin)  stated  that  the  note  of  Teese  which  they 
wished  to  take  up,  had  been  protested,  and  that  he  had  received  a 
notice  of  protest  through  the  bank." 

I  was  at  first  doubtful  whether  this  evidence  might  not  be 
considered  as  showing  an  implied  waiver  of  demand  and  notice. 


376  Presentment  by  Whom 

But  upon  looking1  into  the  authorities,  I  am  satisfied  that  it  cannot 
be  so  considered.  We  are  to  bear  in  mind,  that  the  defendants 
are  not  drawers  of  a  bill  of  exchange,  but  indorsers  of  a  promis- 
sory note,  and  as  against  them,  a  clear  case  of  waiver  must  be 
made  out.  Nothing  short  of  an  unconditional  promise  to  pay, 
made  with  a  full  knowledge  of  the  laches  of  the  holder  of  the 
note,  is  sufficient.  A  knowledge  that  the  maker  could  not  pay, 
does  not  dispense  with  strict  proof  of  demand  and  notice.  In 
Esdaile  v.  Sowcrby,  n  East,  117,  Lord  Ellenborough  said,  that 
a  knowledge  of  the  insolvency  of  the  drawer,  and  acceptor  of  a 
bill,  and  that  it  must  be  dishonored  when  it  became  due,  does 
not  dispense  with  proof  of  actual  notice  of  the  dishonor.  And 
this  principle  may  likewise  be  found  in  many  other  cases,  as  well 
as  in  the  elementary  books.  (2  H.  Blac.  C09;  Doug.  496;  8  East, 
245  ;  2  Bos.  and  P.  277 ;  6  B.  and  C.  373 ;  Chitty  on  B.,  7  Am.  Ed. 
246;  1  Saund.  on  PI.  and  Ev.  292;  Thornton  v.  Wynn,  12  Wheat. 

183)- 

The  admission  therefore  that  Teese  could  not  pay  the  note, 
does  not  affect  the  defendants'  right  to  strict  proof  of  notice. 
Nor  does  the  offer  to  substitute  a  new  note,  drawn  by  Teese,  and 
indorsed  by  the  defendants,  affect  this  right.  It  was  not  an 
unconditional  promise  to  pay,  made  by  the  defendants.  Nor  if  it 
were,  has  it  been  shown  to  have  been  made  with  a  full  knowledge 
of  the  laches  of  the  holder,  by  which  they  were  legally  discharged 
from  all  liability.  All  this  it  is  necessary  to  prove,  before  we 
can  imply  a  waiver  of  notice.  1  Harr.  402;  1  D.  and  E.  712;  12 
Wheat.  R.  183;  5  Burrow  2670;  U.  S.  Bank  v.  Southard,  decided 
at  the  present  term  of  the  court,  ante,  473. 

An  admission  that  notice  of  protest,  had  been  received 
through  the  bank,  is  nothing.  It  does  not  appear  when  it  was 
received.  It  has  never  been  disputed  that  a  notice  was  received ; 
but  the  allegation  is  that  it  was  not  received  in  time,  and  it  was 
the  plaintiff's  duty  to  sjiow  that  it  was  received  or  rather  that  iL 
was  mailed  in  time,  which  it  has  failed  to  do. 

There  was  another  point  made  on  the  argument,  upon  which 
I  shall  do  little  more  than  express  an  opinion,  referring  to  the 
opinions  of  my  brethren,  for  the  authorities.  It  was  alleged  that 
there  was  usury  in  discounting  this  note,  by  the  Sussex  Bank. 
It  appears  by  the  evidence  of  Morford,  the  cashier,  that  in  making 
his  calculation,  he  considered  thirty  days,  a  month,  and  12 
months,  a  year ;  and  that  pursuant  to  a  proposition  of  the  defend- 
ants, he  deducted  from  the  net  proceeds  of  the  note,  one  per  cent 


Waring  v.  Betts  377 

for  a  draft  upon  Newark,  where  at  the  defendants'  request,  the 
proceeds  of  the  note  were  to  be  paid. 

The  mode  of  calculation  adopted,  might  certainly  have  pre- 
sented a  serious  question  for  the  court,  had  it  stood  alone,  but 
M  or  ford  swears  that  he  was  not  aware  that  the  bank  received  by 
that  mode  of  calculation,  more  than  six  per  cent,  that  he  intended 
to  take  no  more.  If  this  be  so,  the  taking  of  more  than  legal 
interest  was  a  mistake ;  as  much  so  as  if  it  had  been  a  mistake  in 
adding  or  substracting  figures.  This  is  the  view  taken  by  Savage, 
C.  J.,  in  the  case  cited  from  3  Wend.  369.  Had  Morford  known 
that  he  was  taking  more  than  six  per  cent  (even  though  he  had 
supposed  that  he  was  legally  entitled  to  make  his  calculation  in 
that  way)  would  present  a  very  different  question.  The  law  will 
infer  a  corrupt  intent,  where  the  fact  of  taking  more  than  six 
per  cent,  knowingly  is  proved,  but  it  cannot  infer  such  intent 
where  it  is  done  in  ignorance  and  mistake  of  facts. 

As  to  the  charge  of  one  per  cent  for  a  draft,  it  was  fairly  put 
to  the  jury  by  the  judge  who  tried  the  cause,  and  their  finding  is 
conclusive  upon  that  question.  They  were  told  that  if  the  charge 
of  one  per  cent  were  unreasonable,  and  a  part  of  the  original 
agreement  to  discount  the  note,  and  if  it  were  made  corruptly,  as 
a  contrivance  and  with  a  design  to  evade  the  statute,  it  was 
usurious.  This  was  doubtless  the  law,  and  the  jury  have,  it  is  to 
be  presumed,  rightly  applied  the  law  thus  given  them,  to  the  facts 
of  the  case.  For  reasons  before  stated,  this  rule  must  be  made 
absolute. 

Hornblower,  C.  J.,  Ford  and  Nevins,  JJ.,  concurred. 
White,  J.,  did  not  hear  the  argument,  and  gave  no  opinion. 

Rule  made  absolute. 

INSTRUMENT  must  be  exhibited. 
XlVaring  v.  Betts  (1893),  9°  ^a-  4&>  44  ^m.  St.  Rep.  890. 

Action  on  a  negotiable  note  against  J.  L.  Waring,  W.  L. 
Waring,  Jr.,  and  J.  D.  Blair,  maker  and  indorsers  of  the  said  note, 
by  E.  Betts,  the  owner  of  the  same.  The  note  was  negotiable  and 
payable  at  the  Business  Men's  Bank,  but  at  its  maturity  the  bank 
had  gone  out  of  existence  and  had  distributed  its  assets.  Demand 
for  payment  was  made  on  W.  L.  Waring,  Jr.,  one  of  the  indorsers 
and  manager  of  the  said  bank,  at  his  place  of  business  at  2  -.30 
p.  m.  of  August  29,  1892.    He  refused  to  pay  on  the  ground  that 


378  Instrument  Must  be  Exhibited 

he  was  not  authorized  to  represent  said  Business  Men's  Bank; 
that  the  funds  of  the  band  had  all  been  distributed ;  that  he  had 
no  assets  in  his  hands  belonging  to  the  bank. 

Later  in  the  day,  at  5  130  p.  m.,  the  note  was  taken  by  a  notary 
to  the  office  of  W.  L.  Waring,  Jr.,  but  that  being  closed  it  was 
taken  to  the  residence  of  Waring  and  presentment  sought  to  be 
made  there.  Failing  to  find  Waring  at  either  place,  the  note  was 
duly  protested  and  notice  was  given  to  the  indorsers.  Judgment 
was  rendered  for  the  plaintiff  and  defendant  applied  for  and 
obtained  a  writ  of  error. 

Berkeley  &  Harrison,  for  plaintiffs  in  error. 
E.  E.  Bouldin,  for  defendant  in  error. 

Lacy,  J.,  (after  stating  the  case)  delivered  the  opinion  of  the 
court. 

The  first  question  arising  here  is  that  raised  by  the  demurrer. 
The  declaration  states  a  good  case,  and  sets  forth  that  on  its  due 
dav  it  was  duly  presented  for  payment  of  the  sum  of  money 
therein  specified,  required,  payment  refused,  and  that  it  was  duly 
protested,  &c. 

And  the  defendants'  demurrer  to  the  plaintiff's  declaration 
was  properly  overruled. 

The  claim  of  the  defendants  is  that  there  was  no  presentment 
of  the  note,  because  when  payment  was  demanded  of  the  indorser, 
W.  L.  Waring,  Jr.,  manager  of  the  late  Business  Men's  Bank, 
Mr.  Glenn  did  not  have  the  note  in  his  possession,  and  could  not 
have  presented  it,  but  as  has  been  seen  from  the  facts  found  by 
the  jury,  payment  was  refused  by  Waring,  and  the  note  not  asked 
for,  but  payment  refused,  and  the  statement  made  that  he  was 
not  authorized  to  represent  the  bank  wriich  had  ceased  to  do  bus- 
iness and  had  distributed  its  assets. 

Presentment  of  the  bill  or  note  and  demand  of  payment 
should  be  made  by  an  actual  exhibition  of  the  instrument  itself ; 
or  at  least  the  demand  of  payment  should  be  accompanied  by  some 
clear  indication  that  the  instrument  is  at  hand  ready  to  be  deliv- 
ered, and  such  must  really  be  the  case.  This  is  requisite  in  order 
that  the  drawer  or  acceptor  may  be  able  to  judge  (1)  of  the  genu- 
ineness of  the  instrument ;  (2)  of  the  right  of  the  holder  to 
receive  payment;  and  (3)  that  he  may  immediately  reclaim  pos- 
session of,  upon  paying  the  amount.  Tf,  on  demand  of  payment 
the  exhibition  of  the  instrument  is  not  asked  for,  and  the  party 
of  whonT^d^mand  is  made  decline  "oh  other  grounds,  a  formaT 
presentment  by_  actual  exhibition  of  the  paper  is  considered  as 


Waking  v.  Betts  379 

waived.  (Dan.  on  Neg.  Inst,  p.  485,  §654;  citing  Lockivood  v. 
Ctawford,  18  Conn.,  361,  and  Fall  River  Union  Bank  v.  Willard, 
5  Metcalf,  216). 

All  the  parties  subsequent  to  the  principal  paver  are  bound 
only  as  his  guarantors,  and  promise  to  pay  only  on  condition 
that  a  proper  demand  of  payment  be  made,  and  due  notice  be 
given  to  them  in  case  the  note  or  bill  is  dishonored.  And  we 
repeat  this  as  one  of  the  fundamental  principles  of  the  law  of 
negotiable  paper;  and  the  infrequency  and  the  character  of  the 
circumstances  which  will  excuse  the  holder  from  making  this 
demand,  and  still  preserve  to  him  all  his  rights  as  effectually 
as  if  it  were  made,  will  illustrate  the  stringency  of  the  rule 
itself.  Parsons  on  Notes  and  Bills,  Vol.  I.,  442.  The  question 
of  excuse,  then,  will  depend  upon  whether  due  diligence  has 
been  used,  and  presents  the  ordinary  inquiry  as  to  negligence. 
The  principal  excuses  resolve  themselves  into  two  classes — 

First.    The  impossibility  of  demand. 

Second.  The  acts,  words,  or  position  of  a  party,  proving  that 
he  had  no  right,  or  waived  all  right  to  the  demand  of  the  waiver 
of  which  he  would  avail  himself. 

That  impossibility  should  excuse  non-demand  is  obvious,  for 
the  law  compels  no  one  to  do  what  he  cannot  perform.  But  it 
must  be  actual  and  not  merely  hypothetical ;  and  though  it  need 
not  be  absolute,  no  slight  difficulty  will  have  this  effect.     Id. 

The  circumstances  which  will  excuse  a  demand  are  such 
generally  as  apply  to  a  faliure  to  present  and  demand  payment 
within  the  required  time,  not  absolutely.     Parsons,  444,  445. 

In  this  case  the  presentment  of  the  note  was  not  made  at 
bank  within  the  usual  bank  hours,  with  the  note  in  possession, 
but  as  we  have  seen,  this  was  excused  in  this  case  (1)  bv  the 
fact  that  there  was  no  bank  to  present  it  at,  and  (2)_because 
payment^ was  refused  upon  the  ground  that  the  bank  had  ceased 
to  jo  business,  and  its  assets  distributed,  and  the  note  was  not 
asked  for,  nor  required,  payment  being  refused  on  other  grounds, 
the  right  to  have  it  produced  must  be  considered  as  waived. 

The  note,  however,  was  carried,  during  the  day,  to  the  place 
of  business  of  the  late  manager  of  the  bank,  and  the  indorser 
sought  to  be  charged,  and  this  being  closed,  it  was  carried  to  his 
residence,  and  that  being  also  closed,  it  could  not  be  presented  to 
him,  and  although  it  was  not  in  banking  hours,  it  was  during  the 
day  time  and  before  the  hours  of  rest. 

When  the  note  is  payable  at  a  bank,  it  is  to  be  presented 
during  banking  hours;  and  the  payer  is  allowed  until  the  expira- 


380  Presentment  at  Bank 

tion  of  banking  hours  for  payment.  But  when  not  to  be  made  at 
bank,  but  to  an  individual,  presentment  may  be  made  at  any 
reasonable  time  during  the  day  during  what  are  termed  business, 
hours,  which,  it  is  held,  range  through  the  whole  day  to  the 
hours  of  rest  in  the  evening.  (Parsons,  447,  citing  Cayuga  County 
Bank  v.  Hunc,  2  Hill,  635 ;  Nelson  v.  Fotterall,  7  Leigh,  194). 

And  in  the  case  of  Fainsworth  v.  Allen,  4  Gray,  453,  a  pre- 
sentment made  at  9  p.  m.  at  the  maker's  residence,  ten  miles  from 
Boston,  when  he  and  his  family  had  retired,  was  held  sufficient. 

And  in  Barclay  v.  Bailey,  2  Camp.  527,  Lord  Ellenborough 
sustained  a  presentment  made  as  late  as  8  p.  m.  at  the  house  of  a 
trader. 

It  is  only  when  presentment  is  at  the  residence  that  the  time 
is  extended  into  the  hours  of  rest.  If  it  is  at  the  place  of  business, 
it  must  be  during  such  hours  when  such  places  are  customarily 
open,  or,  at  least,  while  some  one  is  there  competent  to  give  an 
answer.     (Parsons,  448). 

In  this  case  there  was  no  presentment  to  the  maker,  who 
could  not  be  found,  which,  however,  was  unnecessary  under  sec- 
tion 2842  of  the  Code  of  Virginia.  The  protest  was  in  due  form, 
and  duly  protested,  which  was  authorized  by  section  2849  °*  tne 
Code,  although  the  said  note  was  payable  at  a  bank  in  this 
State.  And  under  section  2850  is  prima  facie  proof  of  the  facts 
stated  therein,  and  are  substantially  in  accordance  with  the  find- 
ing of  the  jury.  It  therefore  appears  that  such_ presentment  as 
was  requisite  was  made  to  the  indorser  and  late  manager  of  the 
bank,  and  that  it  was  impossible  to  present  the  same  at  the  bank 
named  therein,  as  it  had  ceased  to  exist.  We  must,  therefore, 
conclude  that  there  has  been  sufficient  diligence  on  the  part  of 
the  plaintiff,  and  that  the  judgment  of  the  court  below  in  his 
favor  was  right,  and  should  be  affirmed. 

Judgment  affirmed. 

V  presentment  where  instrument  payable  at  bank.    §  77. 
Chicopec  Bank  v.  Philadelphia  Bank  (1869),  8  Wall.  641. 

This  was  a  suit  by  the  Seventh  National  Bank  of  Phila- 
delphia against  the  Chicopee  Bank  of  Springfield,  Massachusetts, 
founded  upon  the  allegation,  that  by  reason  of  the  neglect  of  the 
latter  bank,  the  former  lost  its  remedy  against  the  prior  parties  on 
a  bill  of  exchange,  to  wit,  the  drawer  and  payee. 

The  bill  was  drawn  by  one  Coglin,  of  Philadelphia,  on  Mon- 


- 


Chicopee  Bank  v.  Philadelphia  Bank  381 

tague,  of  Springfield,  payable  to  one  Rhodes,  of  Philadelphia, 
for  $10,000,  and  accepted  by  Montague  specially  payable  at  the 
Chicopee  Bank.  The  day  of  payment  was  Saturday,  February 
18th,  1865.  On  the  13th,  Rhodes,  the  holder,  indorsed  the  bill 
for  value  to  the  Philadelphia  Bank,  which  sent  it  at  once  by  mail, 
inclosed  in  a  letter,  to  the  Chicopee  Bank,  to  receive  payment. 
The  course  of  the  mail  between  Philadelphia  and  Springfield,  is 
two  days.  On  the  15th,  this  letter  with  other  letters  and  papers, 
was  duly  delivered  by  the  postman,  and  placed  on  the  cashier's 
table;  but  (as  was  afterwards  ascertained),  this  letter  slipped 
from  the  pile,  through  a  crack  in  the  table,  into  a  drawer  of  loose 
papers,  and  its  presence  in  the  bank  was  not  known  to  the  cashier, 
and  as  the  two  banks  had  no  previous  dealings,  he  was  not  expect- 
ing anything  from  the  other  bank.  On  the  18th,  Montague,  the 
acceptor,  made  no  attempt  to  pay  the  bill,  either  by  calling  for  it, 
or  depositing  funds,  and  subsequently,  at  the  trial,  made  oath 
that  he  intended  not  to  pay  the  bill,  and  had  a  defence  against  it. 
The  cashier  of  the  Philadelphia  bank,  not  receiving,  on  the  17th, 
an  acknowledgment  of  the  letter  which  he  had  sent  on  the  13th, 
felt  somewhat  anxious;  and  on  the  18th  consulted  the  president. 
On  Monday,  the  20th,  he  telegraphed  to  the  cashier  of  the  Chico- 
pee Bank  as  follows : 

"Did  not  you  receive  ours  of  13th  instant,  with  Montague's 
acceptance,  $10,000?" 

The  dispatch  did  not  indicate  either  the  time  or  place  of 
payment  of  the  draft ;  and  the  reply  was  sent, 

"Not  yet  received." 

This  dispatch  was  received  by  the  cashier  of  the  Philadelphia 
bank,  at  noon  of  the  20th.  He  testified  at  the  trial,  that  he  wrote 
to  Mr.  Rhodes  the  same  day,  informing  him  of  what  he  had 
learned,  that  he  had  no  recollection  of  writing  to  Coglin,  but,  as 
he  knew  they  were  jointly  concerned  in  dealings  in  petroleum 
lands,  he  presumed  Rhodes  would  inform  him.  This  was  the 
only  step  the  cashier  took  toward  charging  the  prior  parties. 
They  both  did  business  at  that  bank ;  Coglin  was  a  director ;  both 
were  frequently  there,  and  well  known  to  the  cashier.  As  the 
mail  required  two  days,  and  the  19th  was  Sunday,  there  was  no 
question  but  the  cashier  had  until  and  including  the  24th,  to  give 
notice  to  Rhodes  and  Coglin.  After  the  receipt  of  the  reply  of 
the  20th,  at  noon,  he  took  no  steps,  by  post  or  telegraph,  to 
ascertain  from  the  Chicopee  Bank  whether  the  acceptor  had  or 
had  not  been  ready  to  pay  on  the  18th.     The  Philadelphia  bank 


382  Presentment  at  Bank 

brought  no  suit  against  Rhodes  or  Coglin,  but  sued  the  Chicopee 
Bank  for  the  amount  of  the  note,  on  the  ground  that  by  its  negli- 
gence, they  had  lost  the  power  to  charge  the  prior  parties. 

The  court  below  instructed  the  jury,  that  the  prior  parties 
were  absolutely  discharged  by  what  took  place  at  the  Chicopee 
Bank,  on  the  18th;  that  where  a  bill  is  accepted  payable  at  a 
particular  bank,  the  bank  need  not  seek  the  acceptor,  but  that 
there  must  still  be  a  presentment,  in  order  to  charge  prior  parties ; 
that  the  presence  of  the  bill  at  the  bank,  ready  to  be  delivered  to 
the  acceptor  upon  his  tendering  payment,  was  equivalent  to  a 
presentment;  but  that  if  the  bill  is  not  at  the  bank  on  the  day  of 
payment,  ready  to  be  delivered  as  aforesaid,  there  is  a  failure  of 
presentment,  and  the  prior  parties  are  discharged,  although  the 
acceptor  made  no  attempt  to  pay ;  that  in  this  case,  therefore, 
the  prior  parties  could  not  be  held  by  any  notice  of  whatever 
description,  whenever  or  by  whomsoever  given ;  and  that  if  the 
loss  or  mislaying  of  the  bill  during  the  whole  of  the  18th,  was 
owing  to  the  negligence  of  its  cashier,  the  Chicopee  Bank  was 
liable  for  the  amount  of  the  note. 

After  the  charge  was  fully  delivered,  the  court  was  asked 
by  the  counsel  of  the  Chicopee  Bank,  to  instruct  the  jury  as  to 
the  burden  of  proof.  This  the  court  refused  to  do,  considering 
that  it  had  already  sufficiently  instructed  the  jury. 

The  verdict  and  judgment  were  accordingly  for  the  plaintiffs. 

R.  H.  Dana,  Jr.,  for  the  Chicopee  Bank,  plaintiffs  in  error. 
Mr.  George  Putnam,  contra. 

Mr.  Justice  Nelson  delivered  the  opinion  of  the  court. 

The  case  was  put  to  the  jury,  whether  or  not  the  loss  of 
the  bill,  and  consequent  inability  of  the  collection  bank  to  take 
the  proper  steps  against  the  acceptors  to  charge  the  prior  parties, 
was  attributable  to  negligence,  and  want  of  care  on  the  part  of 
the  Chicopee  Bank,  and  that,  if  it  was,  the  bank  was  responsible. 
The  jury  found  for  the  plaintiffs. 

Tn  cases  where  the  drawee  accepts  the  bill,  generally,  in 
order  to  charge  the  drawer  or  indorser,  the  holder  must  present 
the  paper,  when  due,  at  his  place  of  business,  if  he  has  one,  if 
not,  at  his  dwelling  or  residence,  and  demand  payment;  and,  if 
the  money  is  not  paid,  give  due  notice  to  the  prior  parties.  If 
he  accepts  the  bill,  payable  at  a  particular  place,  it  must  be  pre^. 
sented  at  that  place,  and  payment  demanded.  In  these  instances, 
as_a  general  rule,  the  bill  must  be  present  when  the  demand  is 
made,  as  in  case  of  payment  the  acceptor  is  entitled  to  it  as  his 


Chicopee  Bank  v.  Philadelphia  Bank 


383 


voucher.  When  the  hill  is  made  payable  at  a  hank,  it  has  been 
held  that  the  presence  of  the  bill  in  the  bank  at  maturity,  with 
the  fact  that  the  acceptor  had  no  funds  there,  or,  if  he  had,  were 
not  to  be  applied  to  payment  of  the  paper,  constitute  a  sufficient 
presentment  and  demand ;  and,  if  the  bill  is  the  property  of  the 
bank,  the  presence  of  the  paper  there  need  not  be  proved,  as  the 
presumption  of  law  is,  that  the  paper  was  in  the  bank,  and  the 
burden  rests  upon  the  defendant  to  show  that  the  acceptor  called 
to  pay  it.  (Chitty  on  Bills,  p.  365  a,  353,  Springfield  ed.  1842;  1 
Parsons  on  Notes  and  Bills,  pp.  363,  421,  437;  Byles  on  Bills,  p. 
251  and  note;  Fullerton  v.  Bank  of  United  States,  1  Peters,  604; 
Bank  of  United  States  v.  Carneal,  2  Id.  543;  Seneca  Co.  Bank  v. 
Neas,  5  Denio,  329;  Bank  v.  Napier,  6  Humphry,  270;  Folgar  v. 
Chase,  18  Pickering,  63. 

In  the  present  case,  it  is  argued  that  the  hill  was  in  the 
Chicopee  Bank  at  the  time  of  its  maturity,  and,  as  the  acceptors 
had  no  funds  there,  a  sufficient  presentment  and  demand  were 
made,  according  to  the  law  merchant.  It  is  true  the  bill  was  there" 
physically,  but,  within  the  sense  of  this  law,  it  was  no  more  pres- 
ent at  the  bank  than  if  it  had  been  lost  in  the  street  by  the  mes- 
senger on  his  way  from  the  post-office  to  the  bank,  and  had 
remained  there  at  maturity ;  and  this  loss,  which  occasioned  the 
failure  to  take  the  proper  steps,  or,  rather,  in  the  present  case,  to 
furnish  the  holder  with  the  proper  evidence  of  the  dishonor  of 
the  paper,  so  as  to  charge  the  prior  parties,  and  enable  him  to 
have  recourse  against  them,  is  wholly  attributable,  according  to 
the  verdict  of  the  jury,  to  the  collecting  bank.  In  the  eye  of  the_ 
law  merchant  there  was  no  presentment  or  demand  against  the 
acceptors ;  and,  as  a  consequence  of  this  default,  the  holder  has 
lost  his  remedy  against  the  drawer  and  indorser,  which  entitles 
him  to  one  against  the  defendant.  The  radical  vice  in  the  defence 
being  the  failure  to  prove  a  presentment  and  demand  upon  the 
acceptors  at  the  maturity  of  the  bill,  the  question  of  notice  is 
unimportant. 

But,  if  it  had  been  otherwise,  the  notice  itself  was  utterly 
defective.  That  relied  on  is  the  answer  of  the  defendant  to 
the  telegram  of  the  plaintiff  of  the  20th  February,  which  was, 
that  the  bill  had  not  yet  been  received.  This  was  after  its  matu- 
rity, and  it  simply  advised  the  holder  and  payee  indorser,  to 
whom  the  information  was  communicated  the  same  dav,  that  the 
drawer  and  indorser  were  discharged  from  any  liability  on  the 
paper.  It  showed  that  the  proper  steps  had  not  been  taken  against 
the  acceptors  to  charge  them. 


^ 


384  Failure  to  Make  Presentment 

Some  criticism  is  made  upon  the  refusal  of  the  court  below 
to  charge,  as  to  which  side  the  burden  of  proof  belonged,  in 
respect  to  the  question  of  negligence  and  want  of  care,  after  the 
paper  came  into  the  hands  of  the  defendant.  No  objection  is 
taken  to  the  charge  itself,  upon  this  question,  and,  indeed,  could 
not  have  been,  as  the  point  was  submitted  to  the  jury  as  favorably 
to  the  defendants  as  could  have  been  asked.  We  think  the 
court,  after  having  submitted  fairly  the  evidence  on  both  sides 
bearing  upon  the  question,  had  a  right,  in  the  exercise  of  its  dis- 
cretion, to  refuse  the  request. 

If,  however,  the  court  had  inclined  to  go  further,  and  charge 
as  to  the  burden  of  proof,  it  should  have  been  that  it  belonged 
to  the  defendant.  The  loss  of  the  bill  by  the  bank  carried  with 
it  the  presumption  of  negligence  and  want  of  care ;  and,  if  it  was 
capable  of  explanation,  so  as  to  rebut  this  presumption,  the  facts 
and  circumstances  were  peculiarly  in  the  possession  of  its  officers, 
and  the  defendant  was  bound  to  furnish  it.  Where  a  peculiar 
obligation  is  cast  upon  a  person  to  take  care  of  goods  intrusted 
to  his  charge,  if  they  are  lost  or  damaged  while  in  his  custody, 
the  presumption  is  that  the  loss  or  damage  was  occasioned  by  his 
negligence,  or  want  of  care  of  himself  or  of  his  servants.  This 
presumption  arises  with  respect  to  goods  lost  or  injured,  which 
have  been  deposited  in  a  public  inn,  or  which  had  been  intrusted 
to  a  common  carrier.  But  the  presumption  may  be  rebutted. 
(Dawson  v.  Chamney,  5  Q.  B.  164;  Coggs  v.  Bernard,  2  Lord 
Raymond,  918;  Day  v.  Riddle,  16  Vermont,  48;  1  Phillips  on 
Evidence,  Cowen's  &  Hill's  Notes,  p.  633). 

Judgment  affirmed. 

WHEN   PRESENTMENT   NOT  REQUIRED  TO   CHARGE   INDORSER.      §  82. 

Am.  Nat.  Bank  v.  Junk  Bros.     (See  page  420.) 


EXCUSE  FOR  FAILURE  TO  MAKE  PRESENTMENT  IN  DUE  TIME.      §  83. 

Windham  Bank  v.  Norton  ct  ah   (1852),  22  Conn.  211,  56  Am. 

Dec.  597.  See  §  107. 

This  was  an  action  of  assumpsit,  brought  by  the  Windham 
Bank,  as  holders  of  a  bill  of  exchange,  against  the  defendants, 
as  indorsers. 

The  bill  of  exchange  referred  to  was  drawn  by  George 
Hobart,  of  Norwich,  in  this  state,  upon  Mansfield,  Hall  &  Stone, 


Windham  Bank  v.  Norton  et  al.  385 

of  Philadelphia,  and  by  them  accepted,  for  $417.26;  dated  Jan- 
uary 31,  1849,  an(1  payable  four  months  after  date,  to  the  order 
of  the  defendants. 

The  declaration  was  in  the  common  form,  and  contained  the 
usual  averments  of  a  due  presentment  of  the  bill  in  question,  and 
notice  of  its  non-payment.  The  defendants  pleaded  the  general 
issue,  and  the  cause  came  on  for  trial,  at  Brooklyn,  October  term, 
185 1.  The  facts  were  found  by  the  court,  by  agreement  of  the 
parties,  as  follows :  Said  bill  of  exchange  was,  on  the  day  of  its 
date,  accepted  by  said  Mansfield,  Hall  &  Stone  "payable  at  the 
Farmers  and  Mechanics'  Bank,"  in  the  city  of  Philadelphia.    On 

the  day  of  February,   1849,  the  defendants  procured   said 

draft  to  be  discounted  by  the  plaintiffs,  and  then  indorsed  and 
delivered  it  to  them.     During  the  same  month  of  February,  the 
plaintiffs  forwarded  said  draft,  by  the  United  States'  mail,  to  the 
Ohio  Life  and  Trust  Co.,  a  banking  corporation  in  the  city  of 
New  York,  for  collection,  and  indorsed  the  same  to  their  cashier, 
as  follows :    "Pay  G.  S.  Coe,  Esq.,  cashier,  or  order ;"  signed, 
"Samuel  Bingham,  cashier."    The  bill,  so  indorsed,  was,  in  a  day 
or  two  thereafter,  and  in  due  course  of  mail,  received  by  said 
Ohio  Life  and   Trust  Co.     The  third   day   of  grace,   June   3d, 
being  Sunday, — the  draft  was  actually  due  and  payable  on  Sat- 
urday, June  2.    During  the  year  1849,  there  were  two  mails  per 
day,  each  way,  between  New  York  and  Philadelphia, — those  for 
the  latter  place,  leaving  New  York,  one  at  nine  A.  m.,  the  other 
at  four  and  a  half  p.  m.,  and  both  due  at  Philadelphia,  in  five 
hours  from  their  departure.    The  Farmers  and  Mechanics'  Bank 
were  the  Philadelphia  correspondents  of  the  Ohio  Life  and  Trust 
Co.,  and  communications,  by  mail,  passed  between  them  daily. 
On  the  morning  of  June  1st,  the  cashier  of  the  Ohio  Life  and 
Trust    Co.,    inclosed   this   draft    with    others,   addressed,    in   the 
proper  and  usual  mode,  to  the  Farmers  and  Mechanics'  Bank, 
and  deposited  said  letter  in  the  United  States'  post-office,  at  the 
city  of  New  York,  in  season  for  the  afternoon  mail  of  that  day,  ^v 
for  Philadelphia.     That  letter  was  duly  deposited  in  said  mail,  J  ':^N*' 
and  said  mail  left  New  York,  and  arrived  at  Philadelphia,  in  due(       *"*".     ^    ^ 
and   usual   time ;   but   the   mail-bags,   containing   the   letters   forL*^  ^x^ 
Philadelphia,  were,  by  the  post-office  clerks  in  the  office  at  New\^KjervU/NL    ^  ~v 
York,  marked  to  be  forwarded  to  Washington,  and  were,  there-  \  s^^  -^>ZJU 
fore,  not  delivered  at  Philadelphia,  but  carried  to  Washington.  l^~**Aa^  "^ 
At  Washington  the  mistake  was  discovered,  and  said  mail-bags  I 
forwarded    to    Philadelphia,    which    place    they    reached    in    the 
course  of  Sunday,  June  3d.     On  the  morning  of  the  next  day, 


-W/^*^} 


386  Failure  to  Make  Presentment 

said  letter,  with  the  draft  inclosed,  was  delivered  from  the  post- 
office  at  Philadelphia,  to  said  Farmers  and  Mechanics'  Bank, 
who,  by  their  cashier,  refused  payment  of  the  same,  and  between 
the  hours  of  nine  and  ten  a.  m.,  of  the  day,  placed  said  draft  in 
the  hands  of  a  notary  public,  for  protest.  Said  notary,  between 
the  hours  of  nine  a.  m.  and  three  p.  m.,  of  said  day,  presented  said 
draft  at  the  counter  of  said  bank  for  payment,  and  received  for 
answer  from  said  cashier,  that  he  was  ordered  by  the  acceptors 
not  to  pay  it,  and  that  had  he  presented  it  on  Saturday,  June  2nd, 
he  should  have  given  him  the  same  answer.  Said  notary  there- 
upon, on  said  4th  day  of  June,  in  due  and  proper  form,  protested 
said  draft,  and  made  out  written  notices  to  the  drawer,  and  the 
several  indorsers,  of  the  non-payment  of  said  draft,  and  inclosed 
said  notices,  with  the  notice  of  protest,  in  a  letter,  and  on  the 
same  day,  deposited  the  same  in  the  post-office  in  said  Philadel- 
phia, duly  addressed  to  George  S.  Coe,  cashier  of  Ohio  Life  and 
Trust  Co.,  New  York,  who  had  indorsed  said  draft  to  the  Farm- 
ers and  Mechanics'  Bank,  and  by  whom  said  letter  was,  in  due 
course  of  mail,  received.  Said  Coe,  on  the  same  day  in  which  he 
received  them,  inclosed  said  letter  of  protest  and  said  notices, 
except  the  one  to  himself,  in  a  letter  duly  addressed  to  the  plain- 
tiffs, and  deposited  the  same  in  the  city  of  New  York,  in  season 
for  the  next  mail.  The  same  was,  in  due  course  of  mail;  received 
by  the  plaintiff's,  who,  on  the  day  of  the  receipt  thereof,  inclosed 
said  notices  to  the  defendants,  as  indorsers,  and  said  notice  to 
said  drawer  (his  residence  being  unknown),  in  a  letter  duly 
addressed  to  the  defendants,  and  deposited  it  in  the  post-office  at 
Windham,  in  season  for  the  next  mail,  and  the  same  was,  in  due 
course  of  mail,  received  by  the  defendants.  Mansfield,  Hall  & 
Stone  became  insolvent,  and  suspended  payment  on  the  12th  day 
of  April,  1849,  and  on  the  next  day,  sent  to  the  Farmers  and 
Mechanics'  Bank,  the  following  notice  in  writing: 

"E.  N.  Lewis,  Esq.,  Cash. 

"You  will  please  pay  no  more  notes  or  drafts  drawn  by  us, 
and  payable  at  your  bank,  until  further  notice,  as  they  will  not 
be  provided  for.     Very  respectfully  yours, 

"Mansfield,  Hall  &  Stone." 

No  further  notice  was  sent,  and  said  bank,  from  that  time 
forward,  acted  upon  this  order,  and  refused  payment  of  all  notes 
or  drafts  payable  at  the  bank,  by  said  firm.  The  business  hours 
of  the  Philadelphia  banks  were,  in  1849,  from  nine  A.  m.  to  three 
p.  m.     Owing  to  the  miscarriage  ofthe  United  States'  mail,  as 


Windham  Bank  v.  Norton  et  ai..  387 

above  stated,  said  draft  was  not  presented  for  payment,  on  Sat- 
urday, June  2d,  when  it  horann-  rim*,  nnd_was  never  presented  for 
payment  at  any  other  time  than  on  said  4th  da^7  of  June. 

It  has  been  the  usage  of  the  banks  and  merchants  of  the 
country,  for  the  last  forty  years,  to  make  use  of  the  United  States' 
mail,  in  forwarding  negotiable  notes  and  bills  of  exchange,  for 
collection  or  acceptance.  It  is  the  custom  of  the  Windham  Bank, 
and  the  four  Norwich  banks,  to  forward  all  paper  in  their  hands, 
payable  abroad,  within  five  or  eight  days  after  it  comes  into  their 
hands,  without  reference  to  the  length  of  time  it  has  to  run. 

The  questions  of  law  arising  upon  these  facts,  and  on  such 
further  facts  as  the  jury  might  rightfully  infer,  were  reserved  for 
the  advice  of  this  court. 

Edmund  Perkins,  for  the  plaintiffs. 
Strong  &  Foster,  for  the  defendants. 

Storrs,  J.  The  defendants  first  insist,  that  the  averments  in 
this  declaration,  of  a  due  presentment  of  the  draft  in  question 
and  notice  of  its  non-payment,  must  be  strictly  proved,  and  that 
they  are  not  sustained,  by  proof  of  the  facts  set  up  by  the  plain- 
tiffs, by  way  of  excuse.  Whatever  may  be  the  course  of  author- 
ities elsewhere,  it  is  well  settled  here,  that  those  allegations  are 
supported  by  evidence  of  matter  of  excuse,  or  a  waiver  of  demand 
and  notice.  Norton  v.  Lewis,  2  Conn.  R.,  479,  and  Camp  v. 
Bates,  11  id.,  478,  are  decisive  on  this  point. 

The  other  and  more  important  question  in  this  case  is, 
whether  the  plaintiffs  are  excused  for  the  non-presentment  of  this 
draft  for  payment,  on  the  day  when  it  became  due.  The  last  day 
of  grace  being  Sunday,  it  was  payable  on  the  preceding  Satur- 
day, which  was  the  second  day  of  June,  1849.  This  question 
depends  on  whether  the  plaintiffs  are  chargeable  with  negligence, 
in  not  presenting  it  on  that  day. 

If  the  agent  of  the  plaintiffs,  to  whom  they  sent  it,  to  be 
forwarded  for  presentment  and  collection,  and  who  transacted 
this  business  for  them,  was  guilty  of  such  negligence,  it  is,  of 
course,  imputable  to  the  plaintiffs.  And  it  is  not  important  to 
this  question,  either  that  the  defendants  in  fact  sustained  no  dam- 
age, by  the  draft  not  having  been  presented  for  payment,  when 
it  fell  due,  or  that  it  would  not  have  been  paid  by  the  acceptor, 
if  it  had  then  been  presented.  The  indorser,  on  a  question  of 
due  presentment  for  payment,  is  not  affected  by  either  of  these 
circumstances.  Nor  indeed  do  the  plaintiffs  claim  to  recover, 
on  either  of  these  grounds. 


388  Failure  to  Make  Presentment 

The  question  of  negligence  here  presented  depends  on  the 
inquiry,  whether,  under  the  circumstances  of  this  case,  the  delay 
of  the  plaintiffs'  agent,  in  not  forwarding  this  draft  to  Philadel- 
phia,  until  the  last  mail  left  New  York  for  that  place,  on  the  day 
next  preceding  that  on  wh ich  the  draft  fell  due,  constituted  a 
want  of  reasonable  or  due  diligence,  in  regard  to  its  presentment. 
We  say,  under  the  circumstances,  because  there  is  no  positive  or" 
absolute  rule  of  law,  which  determines  within  what  precise  time 
the  holder  of  a  bill  of  exchange  must,  in  all  cases  whatever,  or 
at  all  events,  avail  himself  of  the  authorized  mode  of  transmis- 
sion adopted  in  this  instance,  to  forward  such  paper  for  present- 
ment. The  general  principle,  established  by  all  the  adjudged 
cases,  as  well  as  the  approved  elementary  writers,  is,  that  reason- 
able diligence  in  the  presentment  of  a  bill  for  payment,  is  required 
of  the  holder,  and  that,  therefore,  if  there  has  been  no  want  of 
such  diligence,  he  is  excused.  Story  on  Bills,  ch.  10;  Chitty  on 
Bills,  ch.  9,  10;  Story  on  Prom.  Notes,  ch.  7,  §  368;  Patience  v. 
Townlcy,  2  Smith's  R.,  223,  224. 

In  applying  this  principle,  the  general  rule  is,  that  it  must  be 
presented  for  payment,  on  the  very  day  in  which,  by  law,  it 
becomes  due,  and  that,  unless  the  presentment  be  so  made,  it  is 
a  fatal  objection  to  any  right  of  recovery  against  the  indorser. 
But,  although  this  is  the  general  rule,  it  is  not  an  universal  one, 
and  prevails  only  under  the  qualification,  which  is  really  a  part 
of  the  rule  itself,  that  there  is  no  negligence  or  want  of  reasonable 
diligence,  in  not  making  such  presentment.  The  whole  rule, 
therefore,  more  properly  stated,  is,  that  the  presentment  must  be_ 
on  the  day  on  which  the  bill  becomes  due,  unless-it.  is  not  in  the 
power  of  then^lder_._bv__the  iiseIS~reasonable  diligence,  so  to 
presentTt  By  the  very  statement  of  this  rule,  as  thus  fully 
expressed?  it  is  plain  that,  on  the  question,  whether  the  holder 
is  excused  on  this  ground,  for  not  thus  presenting  it,  or,  in  other 
words,  whether  there  was  negligence  on  his  part,  or  a  want  of 
reasonable  diligence,  no  absolute  or  positive  rule  can,  from  the 
nature  of  the  case,  be  laid  down,  which  shall  apply  under  all 
circumstances.  We  have  no  evidence  of  any  general  custom  of 
merchants,  in  regard  to  the  precise  time,  within  which  mercantile 
paper  is  usually  forwarded,  in  order  to  be  presented  for  payment, 
so  that  the  law  merchant  furnishes  us  no  guide  on  this  point. 
And  it  is  clear,  that  the  strict  rule  of  the  common  law,  bv  which 
an  inability  to  perform  the  terms  or  condition  of  a  contract,  by 
reason  of  inevitable  accident  or  casualty,  constitutes  generally  no 
excuse  for  their  non-performance,  is  not  applicable  to  mercantile 


Windham  Bank  v.  Norton  et  al.  389 

instruments  of  this  description.  Therefore,  the  excuse  for  non- 
presentment  in  this  case,  presents  the  ordinary  question  of  negli- 
gence. That  question  may,  and  often  does,  depend  on  such  a 
variety  of  circumstances,  or  those  of  such  a  peculiar  character, 
that  it  is  very  difficult,  if  not  impossible,  to  reduce  them  to  any 
fixed  or  invariable  rule.  But,  in  regard  to  such  a  question,  as 
applicable  to  the  non-presentment  of  a  bill  or  note,  when  it  is 
due,  it  is  considered  a  well  settled  rule,  that  such  want  of  pre- 
sentment is  excused,  by  any  inevitable  or  unavoidable  accident 
not  attributable  to  the  fault  of  the  holde~r,providecl  there  is  a 
presentment  by  him,  as  soon  afterward alTIne  is  ablej  by  which  is 
intended  that  class  of  accidents,  casualties  or  circumstances  which 
render  it  morally  or  physically  impossible  to  make  such  present- 
ment. Judge  Story,  in  speaking  of  this  ground  of  excuse,  says : 
"It  has  been  truly  observed,  by  a  learned  author,"  referring  to 
Mr.  Chitty,  "that  there  is  no  positive  authority  in  our  law,  which 
establishes  any  such  inevitable  accident  to  be  a  sufficient  excuse 
for  the  want  of  a  due  presentment.  But  it  seems  justly  and  nat- 
urally to  flow  from  the  general  principle,  which  regulates  all 
matters  of  presentment  and  notice,  in  cases  of  negotiable  paper. 
The  object,  in  all  such  cases  is,  to  require  reasonable  diligence 
on  the  part  of  the  holder;  and  that  diligence  must  be  measured 
by  the  general  convenience  of  the  commercial  world,  and  the 
practicability  of  accomplishing  the  end  required,  by  ordinary  skill, 
caution  and  effort."  And  he  cites  the  remark  of  Lord  Ellen- 
borough  in  Patience  v.  Townley  (2  Smith's  R.,  223,  224,)  that 
due  presentment  must  be  interpreted  to  mean,  presented  accord- 
ing to  the  custom  of  merchants,  which  necessarily  implies  an 
exception,  in  favor  of  those  unavoidable  accidents,  which  must 
prevent  the  party  from  doing  it  within  regular  time.  (Story  on 
Bills,  §  258.) 

Applying  these  principles  to  this  case,  we  are  of  opinion  that 
the  plaintiffs  are  not  chargeable  with  a  want  of  reasonable  dili- 
gence. 

No  fault  or  impropriety  is  imputable  to  them,  by  reason  of 
their  having  selected  the  public  mailT  as  the  mode  of  forwarding 
the  draft  in  question,  to  the  bank  in  Philadelphia,  where  it  was 
payable.  It  is  properly  conceded  by  the  defendants,  that  such 
mode  of  transmission  was  in  accordance  with  the  general  com- 
mercial usage  and  law^  in  the  case  of  paper  of  this  description. 
Indeed,  it  is  recommended  in  the  books,  as  the  most  proper  mode 
of  transmission,  as  being  the  least  hazardous,  and  therefore  prefer- 
able to  a  special  or  private  conveyance.    But,  although  the  public 


i-k\>^*I^^ 


390  Failure  to  Make  Presentment 

mail  was  a  legal  and  proper  mode  by  which  to  forward  this 
paper,  it  was  their  duty  to  use  it  in  such  a  manner,  that  they 
should  not  be  chargeable  with  negligence,  or  unreasonable  delay. 
If,  therefore,  they  put  the  draft  into  the  post-office,  at  so  late  a 
period  that,  by  the  ordinary  course  of  the  mail,  it  could  not,  or 
there  was  reasonable  ground  to  believe  that  it  would  not,  reach 
the  place  of  its  destination,  in  season  for  its  presentment,  when 
due,  we  have  no  doubt  that  there  would  be,  on  their  part,  a  want 
of  reasonable  diligence,  which  would  exonerate  the  indorser.  On 
the  other  hand,  to  throw  the  risk  of  every  possible  accident,  in 
that  mode  of  forwarding  the  draft,  upon  the  holder,  where  there_ 
has  been  no  such  delay,  would  clearly  be  most  inconvenient^ 
unreasonable  and  unjust,  as  well  as  contrary  to  the  expectation^ 
and  understanding  of  the  indorser,  who  is  presumed  to  be  aware 
of  the  general  usage  and  law,  in  regard  to  the  transmission,  by 
mail,  of  this  kind  of  paper,  and  must  therefore  be  supposed  to 
require  only  reasonable  diligence  in  this  respect,  on  the  part  of 
the  holder ;  and  would,  indeed,  be  inconsistent  with  the  rule  itself, 
which  sanctions  its  transmission  in  that  manner.  It  has  been 
suggested,  that  the  principle  should  be  adopted,  that  when  the 
holder  resorts  to  the  public  mail,  he  should  be  required  to  forward 
the  presentment,  at  so  early  a  period,  that  if  by  any  accident  it 
should  not  reach  the  place  of  its  presentment,  in  the  regular 
course  of  the  mail,  there  should  be  time  to  recall  it,  and  have  it 
presented  when  and  where  it  falls  due ;  or  that,  at  least,  it  should 
be  forwarded  in  season  to  ascertain  whether  it  reached  there  by 
that  time,  and  to  make  such  a  demand  or  presentment  for  pay- 
ment, as  is  required  in  the  case  of  lost  bills.  We  find  no  author- 
ity whatever  for  any  such  rule,  nor  would  it,  in  our  opinion,  com- 
port with  the  principle  now  well  established,  requiring  only 
reasonable  diligence,  on  the  part  of  the  holder,  or  with  the  policy 
which  prevails  in  regard  to  such  commercial  instruments.  It 
would,  in  the  first  place,  be  the  means  of  restraining  the  transfer 
of  such  paper  within  such  a  limited  time  as  to  impair,  if  not  to 
destroy,  its  usefulness  and  value,  arising  out  of  its  negotiable 
quality ;  and,  in  the  next  place,  it  would,  in  many  cases,  be  wholly 
impracticable.  The  casualties,  incident  to  this  mode  of  transmis- 
sion, are  most  various  in  their  character,  and  can  not,  of  course, 
be  foreseen ;  and  they  might,  in  the  case  of  forwarding  mercantile 
paper,  be  such  as  to  render  it  impossible  to  ascertain  its  miscar- 
riage, or  to  recall  it,  in  season  to  remedy  the  difficulty.  In  the 
case  of  the  draft  now  before  us,  for  example,  if  it  had  been 
placed,  by  the  plaintiff's,  in  the  post-office  at  Windham,  where 


Windham  Bank  v.  Norton  et  al.  391 

they  were  located,  and  transacted  their  business,  for  transmission, 
direct  from  thence  to  Philadelphia,  on  the  very  day  when  they 
became  the  holders  of  it,  which  was  between  three  and  four 
months  before  it  became  due,  and,  by  an  accident  or  mistake  of 
the  postmaster  in  the  former  place,  similar  to  that  which  occurred 
in  this  case,  at  New  York,  it  had  been  mailed  to  one  of  the  most 
distant  parts  of  our  country,  or  to  a  foreign  country,  (which 
would  not  have  been  more  singular,  than  that  it  should  have  been 
mistakenly  mailed,  as  in  the  present  case,  for  Washington,)  it 
might  not  have  been  practicable  for  the  plaintiffs  to  learn  the 
accident,  or  obviate  its  effect,  before  the  paper  fell  due.  In  short, 
such  a  rule  as  that  suggested,  would  be  merely  artificial  in  its 
character,  productive  of  great  inconvenience  and  injustice  in  par- 
ticular cases,  without  any  corresponding  general  benefits,  and 
change  the  whole  course  of  business,  in  regard  to  a  most  exten- 
sive and  important  class  of  mercantile  transactions.  Nor  has  any 
other  arbitrary  or  positive  rule  been  suggested,  which  is  not 
equally  obnoxious  to  the  same  or  similar  objections. 

The  only  remaining  enquiry  is,  whether  the  plaintiffs  are 
chargeable  with  negligence,  for  not  forwarding  the  draft  in  ques- 
tion, by  an  earlier  mail  from  New  York  to  Philadelphia.  It  was 
sent  by  the  usual,  legal,  and  proper  mode.  It  was  deposited  in 
the  post-office,  in  season  to  reach  the  place  where  it  was  payable, 
before  it  fell  due,  by  the  regular  course  of  the  next  mail ;  and 
there  was  no  reason  to  believe,  that  it  would  not  be  there  duly 
delivered.  It  was  actually  sent  by  that  mail,  and,  but  for  the, 
mistakeof  the  postmaster  where  it  was  mailed,  in  misdirecting 
the  package  containing  it,  would  have  reached  its  proper  destina- 
tion, and  been  received  there  in  season  for  its  presentment,  when 
due.  It  in  fact  reached  that  place,  when  it  should  have  done; 
but  was  carried  beyond  it,  in  consequence  of  that  mistake.  As 
that  mistake  could  not  be  foreseen  or  apprehended  by  the  plain- 
tiffs, it  is  not  reasonable  to  require  them  to  take  any  steps  to 
guard  against  it.  Indeed,  they  could  not  have  done  so,  as  they 
had  no  control  or  supervision  over  the  postmaster!  They  had  a 
right  to  presume,  that  the  latter  had  done  his  duty.  They  could 
not  know,  that  he  had  misdirected  the  package,  until  it  was  too 
late  to  remedy  the  consequences.  The  occurrence  of  the  draft 
being  sent  beyond  its  place  of  destination,  was,  therefore,  so  far 
as  the  plaintiffs  were  concerned,  an  unavoidable  accident.  It 
happened,  not  in  consequence  of  any  delay  of  the  plaintiffs,  in 
putting  the  draft  into  the  post-office,  at  so  late  a  period  that  it 
could  not,  or  probably  would  not,  reach  its  destination  in  due 


392  Failure  to  Make  Presentment 

e>~N^.-  k><j^    season,  but  merely  in  consequence  of  the  act  of  the  official  to 
■»-  dJJb^j^^ia,  whom  it  was  properly  confided,  done  after  it  was  properly  in  his 
^-a-tX-*^*-©^:   charge,  by  the  plaintiffs,  for  transmission.     The  accident,  more- 
over, was  of  a  very  peculiar  and  extraordinary  character,  and 
quite  different  from  those  which  are  ordinarily  incident  to  that 
mode  of  transmission,  and  against  which  it  would  be  extremely 
difficult,  if  not  impossible,  to  guard.     It  would  have  been  equally 
liable  to  occur,  at  any  time,  when  the  draft  should  have  been 
^placed  in  the  post-office.    It  was  not  owjngT  in  any  serine,  tn  de- 
fault of  the  plaintiffs,  but  solely  to  that  of  the  postmaster..    Under 
these  circumstances,  we  do  not  feel  authorized  to  impute  any 
blame  or  negligence   to   the  plaintiffs.     We   are,   therefore,   of 
opinion,  that  judgment  should  be  rendered  for  the  plaintiffs. 
In  this  opinion,  the  other  judges  concurred. 

Judgment  for  the  plaintiffs. 


Pier  et  al.  v.  Heinrichshoffcn  (1877),  67  Mo.  163,  29  Am.  Rep. 

501. 

Appeal  from  St.  Louis  Circuit  Court. 

Fisher  &  Rowejl  and  Botsford  &  Williams,  for  appellants. 
Slayback  &  Haenssler,  for  respondents. 

Hough,  J.  This  was  an  action  brought  by  the  plaintiffs,  as 
holders  of  a  negotiable  promissory  note,  against  the  defendants, 
as  indorsers  thereof.  The  questions  presented  for  determination 
are,  whether  the  plaintiffs  used  due  diligence  in  making  demand 
of  payment,  and  gave  the  requisite  notice  of  non-payment  to  the 
defendants.  The  facts  are  as  follows:  The  note  in  question 
matured  on  the  4th  day  of  July,  1861,  and  was  payable  at  the 
banking  house  of  F.  &  G.  Willins,  in  the  city  of  St.  Paul,  Min- 
nesota. Some  time  in  April,  1861,  the  plaintiffs  delivered  the 
same  to  the  bank  of  Cooperstown,  at  Cooperstown,  New  York, 
for  collection.  At  that  time  a  letter,  in  due  course  of  mail,  would 
reach  St.  Paul  from  Cooperstown,  in  about  six  days.  The 
cashier  of  the  bank  of  Cooperstown  sent  the  note  by  mail  to  its 
regular  correspondent,  the  Rank  of  St.  Paul,  in  the  city  of  St. 
Paul,  for  collection,  in  ample  time,  as  the  cashier  stated,  for  it  to 
reach  its  destination  by  ordinary  course  of  mail,  before  the  matur- 
ity of  the  note.  When  the  letter  reached  St.  Paul,  the  Bank  of  St. 
Paul  had  made  an  assignment,  and  the  envelope  having  printed  on 


Pier  et  al.  v.  Heinrichshoffen  393 

it  the  words  "From  the  Dank  of  Cooperstown,"  the  postmaster  at 
once  returned  it  to  the  Bank  of  Cooperstown,  with  the  indorse- 
ment  "hank  failed."  The  letter  was  received  by  the  Cooperstown 
Bank  in  the  original  envelope,  unopened,  on  the  9th  day  of  July, 
1861,  and  on  the  same  day  the  note  was  returned  by  mail  to  St. 
Paul  in  a  letter  directed  to  F.  &  G.  Willins,  who  caused  it  to  be 
presented  and  protested  on  the  15th  day  of  July,  1861,  the  day  on 
which  it  was  received. 

The  defendants  contend  that  there  was  a  want  of  diligence 
in  not  sending  the  note  in  time  to  guard  against  such  contin- 
gencies as  the  evidence  discloses,  and  that  the  action  of  the  post- 
master in  the  premises,  is  no  sufficient  excuse  for  the  failure  to 
present  for  payment  on  the  day  of  the  maturity  of  the  note. 
Professor  Parsons,  in  his  treatise  on  Notes  and  Bills,  says : 
"Ordinarily  any  failure  to  present  a  note  at  the  proper  time,  by 
reason  of  the  negligence  of  an  agent,  would  discharge  an  indorser, 
but  where  the  holder  makes  use  of  the  public  mail  for  the  pur- 
pose  of  transmitting  the  note  to  the  proper  placein  season  to~ 
Lave  a  legal  demand  made,  and  without  any  negligence  on  his 
part,  we  should  say  that  he  would  not  lose  his  remedy  on  an 
indorser,  if  through  any  accident  or  disorder,  or  the  negligence 
or  mistake  of  the  postoffice  clerks,  the  note  does  not  reach  the 
destined  place  in  season  to  make  demand  on  the  very  day  of 
maturity."  Vol.  1,  p.  461.  In  support  of  his  text  he  cites  the 
case  of  Windham  Bank  v.  Norton,  22  Conn.  213,  the  leading 
features  of  which  bear  such  a  striking  resemblance  to  the  case 
at  bar,  that  we  think  it  proper  to  present  them.  The  draft  in  that 
case  was  drawn  upon  and  accepted  by  xMansfield,  Hall  &  Stone,  G-ro^Or,  >j»a 
of  Philadelphia,  payable  at  the  Farmers'  &  Mechanics'  Bank,  in 
said  city,  on  the  2d  day  of  June,  1849,  anc^  was  indorsed  by  the 
defendants  to  the  plaintiffs  in  the  month  of  February,  1849. 
During  the  same  month  the  bill  was  indorsed  and  delivered  to 
the  Ohio  Life  and  Trust  Co.,  a  banking  corporation,  in  the  city 
of  New  York,  for  collection.  At  that  time  there  were  two  mails 
per  day  from  New  York  to  Philadelphia ;  one  leaving  at  9  a.  m. 
and  one  at  4  p.  m.,  both  of  which  were  due  at  Philadelphia  five 
hours  after  their  departure.  The  Farmers'  and  Mechanics'  Bank 
was  the  Philadelphia  correspondent  of  the  Ohio  Life  and  Trust 
Co.  On  the  morning  of  June  1st,  the  cashier  of  the  Ohio  Life 
and  Trust  Co.  inclosed  this  draft  with  others,  properly  addressed 
to  the  Farmers'  and  Mechanics'  Bank,  and  deposited  said  letter 
in  the  postoffice  at  the  city  of  New  York,  in  time  for  the  afternoon 
mail,  of  that  day  for  Philadelphia.     This  mail  arrived  at  Phila- 


394  Failure  to  Make  Presentment 

delphia  in  due  time,  but  the  mail  bags  containing  the  letters  for 
Philadelphia  were,  by  the  postoffice  clerks  in  New  York,  marked 
to  be  forwarded  to  Washington,  and  were  therefore  carried  to 
the  latter  place.  The  mistake  was  discovered  at  Washington, 
and  the  mail  returned  to  Philadelphia,  reaching  there  on  the  3d 
of  June,  and  on  the  next  day,  June  4th,  payment  was  demanded 
and  refused,  protest  made  and  notice  given.  In  discussing  the 
question  of  negligence,  or  reasonable  diligence,  the  court  said : 
"The  only  remaining  inquiry  is,  whether  the  plaintiffs  are  charge- 
able with  negligence  for  not  forwarding  the  draft  in  question, 
by  an  earlier  mail  from  New  York  to  Philadelphia.  It  was  sent 
by  the  usual,  legal  and  proper  mode.  It  was  deposited  in  the 
postoffice  in  season  to  reach  the  place  where  it  was  payable,  before 
it  fell  clue,  by  the  regular  course  of  the  next  mail,  and  there  was 
no  reason  to  believe  that  it  would  not  be  there  duly  delivered. 
It  was  actually  sent  by  that  mail,  and,  but  for  the  mistake  of  the 
postmaster  where  it  was  mailed,  in  misdirecting  the  package  con- 
taining it,  would  have  reached  its  proper  destination,  and  been 
received  there  in  season  for  its  presentment  when  due.  It  in 
fact  reached  that  place,  when  it  should  have  done,  but  was  car- 
ried beyond  it,  in  consequence  of  that  mistake.  As  that  mistake 
could  not  have  been  foreseen  or  apprehended  by  the  plaintiffs,  it 
is  not  reasonable  to  require  them  to  take  any  steps  to  guard 
against  it.  Indeed  they  could  not  have  done  so,  as  they  had  no 
control  or  supervision  over  the  postmaster.  They  had  a  right  to 
presume  that  the  latter  had  done  his  duty.  They  could  not  know 
that  he  had  misdirected  the  package,  until  it  was  too  late  to 
remedy  the  consequences.  The  occurrence  of  the  draft  being  sent 
beyond  its  place  of  destination,  was,  therefore,  so  far  as  the  plain- 
tiffs were  concerned,  an  unavoidable  accident." 

We  have  been  referred  by  defendants'  counsel  to  the  case  of 

^A~-"  SchoUeld  v.  Bayard,  3  Wend.  488,  as  being  in  direct  conflict  with 

w^^e,   tr.V*^     the  case  just  cited  from  Connecticut;  but  a  careful  examination 

■v^vSjC^jl  ^**°-o  of  the  facts  in  Schofield  v.  Bayard  will  show  that  there  is  no  con- 

x*aj^v^*^     flict  whatever  between  the  two  cases.     The  latter  case  contains 

j,  ^A^a  v^u»s(  an  eiement  0f  negligence  on  the  part  of  the  holder,  which  was 

_s_©-u>    <x  tXyvs  aDSent  from  the  case  of  Bank  v.  Norton,  and  which  is  wanting  in 

,~0jl&>a-  v*a~°^>  the  case  at  bar.     The  facts  were,  that  a  bill  drawn  by  a  firm  in 

o'w~2*",/k  ^X    New  York  on  a  house  in  Liverpool  was  accepted  supra  protest, 

Ysjt*Aj-Aft^--c*  by  a  house  in  London.     The  bill  was  sent  by  the  holder,  who 

resided   at  Birmingham,  to  Liverpool   for  payment,   instead   of 

London,  where  it  was  payable.     The  holder's  correspondent  at 

Liverpool  returned  the  bill  in  a  letter  to  the  holder,  with  advice 


v- 


Pier  et  al.  v.  Heinrichshoih-.n  395 

that  the  presentation  should  be  made  in  London,  and  the  letter 
was  put  in  the  postoffice,  but  by  some  oversight  of  the  clerks  in 
the  postoffice,  it  did  not  get  to  Birmingham  in  time  for  the  holder 
to  forward  it  to  London  and  have  a  regular  demand  made.  It 
was  held  that  the  drawers  were  discharged.  The  court  said : 
"This  case  presents  no  impossibility,  if  due  diligence  had  been 
used.  The  plaintiff  should  not  have  sent  the  bill  to  Liverpool  at 
all.  It  is  true  that  after  the  leter  containing  it  had  been  left  at 
Liverpool,  on  the  ioth  of  November,  it  could  not  have  reached 
London  in  season  ;  but  it  was  the  fault  of  the  plaintiffs  to  have 
parted  with  the  bill  in  the  manner  they  did.  Instead  of  sending 
it  to  Liverpool,  they  should  have  sent  it  to  London,  and  then  it 
would  have  been  in  season,  and  probably  would  have  been  paid. 
I  am  of  the  opinion  that,  by  the  law  merchant  payment  should 
have  been  demanded  in  London  on  the  12th  of  November,  and 
that  not  having  been  done,  and  there  being  no  impossibility  to 
prevent  it  but  what  is  attributable  to  the  want  of  due  diligence 
on  the  part  of  the  holders,  the  defendants  are  legally  discharged, 
and  are  entitled  to  judgment."  It  will  be  seen  that  the  court 
places  its  judgment  expressly  upon  the  ground  that  the  holder 
was  guilty  of  negligence  in  sending  the  bill  to  Liverpool,  and 
this  fault  of  his  produced  the  impossibility  by  virtue  of  which  he 
claimed  to  be  discharged.  In  the  present  case  the  letter  contain- 
ing the  note  was  not  misdirected;  it  was  properly  directed ;  it 
actually  reached  St.  Paul  in  time,  and  but  for  its  unauthorized" 
return~py"  the  postmaster,  the  probabilities  are  that  some  agent 
or  representative  of  the  suspended  bank  would  have  received  it 
in  time  to  make  due  presentment,  as  the  testimony  tends  to  show 
that  the  representatives  of  the  bank  continued  to  receive  letters 
addressed_to  it,  after  its  suspension.  The  holders  therefore  exer- 
cised due  diligence  in  sending  the  note  when  they  did ;  its  arrival 
in  time  demonstrates  that  fact;  and  they  were  not  required  to 
makeprovision  in  advance  for  a  possible,  but  unanticipated  sus-L 
pWiorrol  the  bank"  of  St.  Taul  before  arrival  of  their  letter* 
OTtoran^nwarrantable  interference  with  the  same  bv  the  public 
^cerjin^Harge~of~The:7n^ilsl  after  its  arrival  "vVe  are  of  the" 
opimonr  therefore,  that  under  the  circumstances  of  this  case,  the 
demand  was  seasonably  made. 

Objections  are  also  made  to  the  notice  which  was  given  by 
the  notary.  The  certificates  of  protest  are  as  follows:  "Due 
notices  of  the  foregoing  presentment,  demand,  refusal  and  pro- 
test were  put  into  the  postoffice  at  St.  Paul,  as  aferosaid,  and 
directed  a9  follows:    Notice  for  Katharina  Ambs,  directed   St. 


396  Waiver  of  Presentment  and  Demand 

Louis,  Mo. :  Notice  for  W.  and  R.  Heinrichshoffen,  directed  St. 
Louis,  Mo."  And  the  notary  testified,  "1  personally  mailed  such 
notices  in  the  postoffice  on  the  15th  day  of  July,  A.  D.  1861." 
The  objection  is  that  he  did  not  say  that  he  had  prepaid  the 
postage;  and  the  court  instructed  the  jury  that  this  was  neces- 
sary. This  objection  is  rather  hypercritical.  The  word  mailed, 
as  applied  to  a  letter,  means  that  the  letter  was  properly  prepared 
foF  transmission  by  the  servants  of  the  postal  department,  and 
that  it  was  put  in  the_custody  of  the  officer  charged  with  the  duty 
of~~forwarding  the~maiT  Indeed  the  words  "put  into  the  post- 
office,"  as  used  by  the  notary,  have  a  technical  significance  which 
is  well  defined;  and  jthey  are  commonly  employed  to  designate 
the  duty  of  the  holder  in  giving  notice.  Since  the  enactment  of 
the  laws  requiring  all  mail  matter  to  be  prepaid,  these  words  have 
been  used  by  this  court  in  the  sense  of  mailed.  Renshaw  v. 
Triplett,  23  Mo.  220;  Sanderson  v.  Reinstadlcr,  31  Mo.  485.  In 
Story  on  Promissory  Notes,  §  328,  (Ed.  1859,)  it  is  said,  "all 
that  the  law  requires  of  the  holder  is  due  diligence  to  send  the 
notice  within  the  proper  time ;  and  he  has  done  his  whole  duty, 
when  he  puts  it  into  the  proper  postoffice  in  due  season,  and  it 
is  properly  directed.  The  holder  has  no  control  over  the  acts, 
or  operations,  or  conduct  of  the  officers  of  the  postoffice,  and  is 
not  responsible  for  the  accident  or  neglect  which  may  prevent  a 
due  delivery  of  the  notice  to  the  party  entitled  to  notice."  It 
sufficiently  appears  in  the  present  case  that  the  notice  was  prop- 
erly directed.  The  evident  and  only  meaning  of  the  notary's 
certificate  is  that  the  notice  was  mailed  to  the  defendants  at  St. 
Louis,  Mo. 

The  judgment  will  be  reversed  and  the  cause  remanded. 

All  concur.  Reversed. 

WAIVER  OF  PRESENTMENT  AND  DEMAND.  §  84 — 3. 

Ross  v.  Hurd,  imp.  {1877),  71  N.  Y.  14. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  third  judicial  department,  entered  upon  an  order 
denying  a  motion  for  a  new  trial,  and  directing  judgment  on  a 
verdict. 

This  was  an  action  upon  a  promissory  note  made  by  defend- 
ant Kingsbury,  and  indorsed  by  defendant  Hurd  for  the  accom- 
modation of  the  maker.    Hurd  alone  defended. 


Ross  v.  Hurd  ii97 

The  evidence  is  sufficiently  set  forth  in  the  opinion.  The 
court  at  the  close  of  the  evidence  nonsuited  the  plaintiff,  to  which 
plaintiff's  counsel  duly  excepted. 

/.  McGuire,  for  appellant. 

E.  Countryman,  for  respondent. 

Andrews,  J.  There  was  no  demand  or  notice  of  non-pay- 
ment of  the  note  when  it  became  due,  and  the  plaintiff  was  nol 
relieved  from  the  necessity  of  making  a  demand  and  giving  notice, 
by  what  occurred  between  the  plaintiff  and  the  defendant,  at  the 
Tnterview  on  the  first  or  second  day  of  November.  1872.  before 
the  maturity  of  the  note. 

The  evidence  is  that  Kingsbury,  the  maker  of  the  note,  a  few 
days  before  that  time,  had  applied  to  the  plaintiff  to  extend  the 
time  of  payment  ninety  days,  and  the  plaintiff  consented  to  do  so, 
if  the  note  was  kept  good  and  secure.  The  plaintiff  afterwards 
went  to  the  bank  and  had  the  interview  spoken  of  with  the  defend- 
ant. He  informed  the  defendant  of  what  had  occurred  between 
him  and  Kingsbury,  and  stated  that  he  had  come  to  make  some 
arrangement  with  regard  to  the  note.  The  plaintiff  testifies :  "I 
stated  to  him  (Hurd)  that  I  could  let  him  (Kingsbury)  have  the 
money  longer,  if  he  kept  it  well  secured  or  kept  the  note  good  (I 
don't  recollect  the  exact  words  I  used  to  him)  ;  and  he  said  he 
guessed  that  could  be  fixed,  and  he  would  get  Kingsbury  in,  or 
I  was  to,  and  I  went  out  to  look  for  him."  The  plaintiff  then  left 
the  bank  to  find  Kingsbury,  but  did  not  find  him,  and  later  in  the 
afternoon  returned  to  the  bank  to  see  the  defendant ;  but,  not  find- 
ing him  there,  went  away  and  did  not  see  him  again  until  after 
the  note  fell  due.  It  is  inferable,  from  this  evidence,  that  the 
defendant  was  willing  to  continue  his  liability  as  indorser,  but  it 
was  left  to  be  arranged  at  an  interview  to  be  had  between  all  the 
parties.  There  was  no  request  by  Hurd  that  the  plintiff  would 
extend  the  time  of  payment  of  the  note,  nor  was  anything  said  by 
him  which  would  justify  the  plaintiff  in  believing  that  he  would 
dispense  with  demand  and  notice,  or  which  was  calculated  to  mis- 
lead the  plaintiff.  The  conversation  clearly  contemplated  a  new 
and  substituted  arrangement  to  be  made  before  the  note  matured 
for  continuing  the  loan.  The  plaintiff,  therefore,  was  not  entitled 
to  recover,  on  the  theory  that  this  transaction  dispensed  with  the 
necessity  of  protest.  It  is  quite  evident,  however,  that  the  plaintiff 
either  did  not  understand  that  demand,  and  notice  was  necessary 
to  charge  an  indorser,  or  supposed  that  what  occurred  between 
him  and  the  indorser,  on  this  occasion,  made  a  protest  unneces- 


398  Waiver  of  Presentment  and  Demand 

sary.  He  waited  until  the  expiration  of  the  second  ninety  days, 
and  then  went  to  the  bank,  with  Kingsbury,  and  had  a  second 
interview  with  Hurd ;  and  the  liability  of  Hurd,  in  this  action, 
depends  upon  what  took  place  on  that  occasion.  Kingsbury 
desired  a  still  further  extension  of  ninety  days,  and  he  procured 
from  the  bank  (the  defendant,  Hurd,  counting  out  the  money  for 
him)  the  sum  necessary  to  pay  the  interest  on  the  note  to  that 
time,  and  paid  it  to  the  plaintiff;  and  the  plaintiff  then  spoke  to 
Hurd  about  the  extension  of  time,  and  Hurd  replied :  "You  and 
Kingsbury  can  fix  that  about  as  you  are  a  mind  to."  The  testi- 
mony proceeds  as  follows:  "He  (Kingsbury)  asked  how  I  (plain- 
tiff) would  fix  it ;  whether  I  would  have  a  new  note,  or  what ; 
and  I  told  him  if  both  parties  agreed  I  would  let  the  note  stand 
/  just  as  it  was;  and  Hurd  turned  around  from  us,  and  said, (then  I 
^-jp^  J  I  will  waive  protest.)'  This  closed  the  conversation,  and  the  plain- 
tiff left  the  bank,  and  waited  until  the  expiration  of  ninety  days 
from  that  time,  when  he  called  upon  the  defendant,  and  informed 
him  that  the  note  was  due,  and  that  he  would  have  to  collect  it ; 
and  soon  after,  the  defendant  claimed  that  the  note  had  not  been 
protested,  and  declined  to  pay  it. 

Upon  these  facts  the  question  is  presented,  whether  the  non- 
suit was  properly  granted.  When  the  parties  met  at  the  bank,  on 
the  second  occasion  referred  to,  Hurd  had  been  discharged  from 
his  liability  as  indorser,  by  the  neglect  of  the  plaintiff  to  take  the 
steps  necessary  to  fix  his  liability.  But  it  was  competent  for  the 
defendant  to  waive  the  objection  arising  from  the  plaintiff's  laches, 
and  to  renew  and  continue  his  liability  as  indorser,  and  debar  him- 
self from  setting  up,  when  sued  on  the  note,  the  want  of  protest 
as  a  defense.  If  an  indorser,  with  full  knowledge  of  the  laches  of 
the  holder  in  neglecting  to  protest  a  note  or  bill,  unequivocally 
assents  to  continue  his  liability,  or  to  be  responsible,  as  though 
due  protest  had  been  made,  he  is  held  to  have  waived  the  right  to 
ofjject,  arioTwill  stand  in  the  same  position  as  Ifhe  had  been  regu- 
larly charged  by"  presentment,  demand  and  notice.  This  assent 
must  be  clearly  established,  and  will  not  be  inferred  from  doubtful 
or  equivocal  acts  or  language.  It  has  been  frequently  held  that  a 
promise  bv__the  indorser  to  pay  the  note  or  bill,  after  he  has  been 
discharged  by  the  failure  to  protest  it,  will  bind  the  indorser,  pro- 
vided he  had  full  knowledgeTof  the  laches  when  the  promisewas 
rnade^  (Trimble  v.  Thome,  16  J.  R.,  152;  Sto.  on  Prom.  Notes, 
§§  359>  362,  and  cases  cited).  A  promise,  made  under  these  cir- 
cumstances, affords  the  clearest  evidence  that  the  indorser  does 
not  intend  to  take  advantage  of  the  laches  of  the  holder;  and  the 


Ross  v.  Hurd  399 

law,  without  any  new  consideration  moving1  between  the  parties, 
gives  effect  to  the  promise.  The  assent  of  the  indorser  to  be 
bound,  notwithstanding  he  has  not  been  duly  charged,  may  be 
established  by  any  transaction  between  him  and  the  holder,  which 
clearly  indicates  this  purpose  and  intention.  In  Duryee  v.  Denni- 
son  (5  J.  R.,  248),  the  action  was  against  an  indorser  who  had 
not  been  regularly  charged  by  demand  and  notice.  No  demand 
of  payment  was  made  until  the  day  after  the  note  became  due.  To 
avoid  the  defense  based  on  this  ground,  it  was  shown  that,  after 
the  note  became  due,  the  attorney  for  the  plaintiff  called  on  the 
defendant  and  informed  him  of  the  non-payment  by  the  maker, 
and  that  the  plaintiff  looked  to  him  for  payment.  The  defendant 
was  told  at  the  same  time  that  the  demand  and  notice  was  irregu- 
lar, but  the  defendant  "agreed  to  consider  the  demand  and  notice 
as  made  in  due  time,  and  himself  liable  as  indorser."  The  court 
held,  that  this  was  equivalent  to  a  promise  of  payment,  and  author- 
ized a  verdict  for  the  plaintiff.  Kent,  Ch.  J.,  said :  "We  are  of 
opinion  that  the  testimony  of  Aiken,  as  given  at  the  trial,  was 
sufficient  to  support  the  verdict.  The  law  is  now  settled  that  if 
an  indorser  has  not  had  regular  notice  of  non-payment  by  the 
drawer,  yet  if,  with  knowledge  of  that  fact,  he  makes  a  subse- 
quent promise  to  pay,  it  is  a  waiver  of  the  want  of  due  notice,  and 
assumpsit  will  lie." 

In  the  case  at  bar,  we  think  the  jury  would  have  been  author- 
ized to  find  that  the  defendant,  with  knowledge  of  the  fact  that 
the  note  had  not  been  protested,  consented  to  be  liable  as  indorser 
upon  the  note,  and  that  his  indorsement  should  stand  as  security 
to  the  plaintiff;  and  also  the  further  fact  that  the  plaintiff,  in 
consideration  of  this  consent,  agreed  to  extend  the  time  of  pay- 
ment of  the  note,  and  that  such  consent  was  given  to  induce  such 
extension,  without  exacting  a  new  security.  In  construing  the 
transaction,  the  jury  were  entitled  to  consider  the  surrounding 
circumstances.  The  defendant  was  a  banker,  and  familiar,  as  may 
be  presumed,  with  the  rules  regarding  the  protest  of  commercial 
paper.  His  words,  "I  will  waive  the  protest,  then,"  had  no  sig- 
nificance, unless  they  were  intended  to  remove  the  objection  aris- 
ing from  the  prior  laches  of  the  holder,  in  neglecting  to  protest 
the  note  at  maturity.  He  intended,  as  is  manifest,  to  continue 
his  liability  as  indorser  for  the  security  of  the  plaintiff.  He 
seemed  to  be  willing  to  become  obligated  on  a  new  instrument,  or 
to  renew  his  liability  on  the  old  one,  as  the  plaintiff  and  Kings- 
bury should  arrange.  And  the  plain  inference  jrom_the_f on vpr- 
sation  is,  that  the  plaintiff  consented  to  let  the  old  note  stand,  on 


400  Waiver  of  Presentment  and  Demand 

consideration  that  the  defendant  continued  liable  thereon  :and  the 


defendant's  declaration  could  mean  nothing  less  than  that  he 
would  make  no  question  as  to  the  protest  of  the  note,  or  as  to  his 
liability  as  an  indorse?]  This  case  is  stronger  in  reason,  for  hold- 
ing  the  indorser,  than  where  there  is  a  simple  promise  to  pay  after 
maturity.  The  transaction  here,  not  only  indicates  an  intention 
on  the  part  of  the  indorser  to  remain  bound,  notwithstanding  his 
discharge,  but  the  waiver  of  the  laches  of  the  plaintiff  was  the 
consideration  for  the  extension,  given  by  the  plaintiff  to  the 
maker. 

The  nonsuit  was  improperly  granted,  and  the  judgment 
should  be  reversed,  and  a  new  trial  ordered. 

All  concur,  except  Folger  and  Miller,  JJ.,  absent. 

Judgment  reversed. 

y.  In  re  Swift  (iqoi),  106  Fed.  65. 

In  Bankruptcy. 

Bancroft  G.  Darns,  for  Foreman,  an  objecting  creditor. 
Elder,  Wait  &  Whitman,  for  Burleigh. 

Lowell,  District  Judge.  Under  St.  Mass.  1898,  c.  533, 
§§  63,  64,  Hodges  was  an  indorser  of  the  note  in  question.  By 
sections  70  and  82  of  the  same  act,  presentment  for  payment  was 
necessary  to  charge  him  as  indorser,  "except  as  herein  otherwise 
provided."  The  first  exception  relied  on  by  the  creditor  is  found 
in  section  79 :  "Presentment  for  payment  is  not  required  in  order 
to  charge  the  drawer  where  he  has  no  right  to  expect  or  require 
that  the  drawee  or  acceptor  will  pay  the  instrument."  The  appeal- 
ing creditor  of  the  joint  estate  contends  that  section  79  applies 
only  to  the  drawer  of  a  bill  of  exchange,  and  not  to  the  indorser 
of  a  promissory  note.  In  some  cases  it  is  said  or  assumed  that 
the  rights  of  a  drawer  of  a  bill  of  exchange  regarding  demand 
and  notice  are  the  same  as  those  of  an  indorser  of  a  promissory 
note  (see  Bank  v.  Fulmcr,  3  Pa.  St.  399),  but  it  is  at  least  doubt- 
ful if  the  assumed  identity  governs  the  construction  of  a  statute 
like  that  before  the  court,  where  the  words  drawer,  maker, 
indorser,  etc.,  appear  to  be  used  in  their  discriminated  sense.  It 
is  not  necessary  to  decide  this  point,  in  view  of  the  construction 
put  upon  other  sections  of  the  act. 

The  second  exception  insisted  upon  is  that  found  in  section 
82:    "(3)   By  waiver  of  presentment,  express  or  implied."     No 


In  re  Swift  401 

express  waiver  is  here  shown,  and  the  case  turns  upon  the  exist- 
ence or  absence  of  waiver  implied  from  the  facts  agreed  by  the 
parties  and  stated  by  the  referee.  St.  Mass.  1898  is  intended  to 
supersede  all  other  statutes  relating  to  promissory  notes,  and,  as 
it  does  not  purport  merely  to  rearrange  statutes  previously  exist- 
ing, there  is  no  strong  presumption  that  any  one  of  its  provisions 
is  merely  a  codification  of  the  law  previously  existing.  When  it 
attaches  certain  results  to  an  implied  waiver  of  demand,  however, 
a  court  called  upon  to  define  such  waiver  may  appropriately  look 
at  definitions  of  the  term  previously  established.  When  the 
legislature  of  Massachusetts  used  the  words,  "waiver  of  present- 
ment, express  or  implied,"  it  may  be  supposed  to  have  used  these 
words  in  the  meaning  consistently  attributed  to  them  by  the 
courts  of  Massachusetts.  In  Kent  v.  Warner,  12  Allen,  561,  563, 
Mr.  Justice  Foster  said,  in  delivering  the  opinion  of  the  supreme 
court : 

"Strictly  speaking,  a  waiver  is  an  intentional  relinquishment 
of  a  known  right ;  but  where  the  indorser  of  a  note  by  words  or 
acts  has  in  fact  misled  and  put  the  holder  off  his  guard  and 
reasonably  induced  him  to  omit  due  presentment  for  payment  and 
jiotice  of  nonpayment,  he  is  deemed  in  law  to  have  waived  the 
performance  of  these  ceremonies,  because  it  would  be  inconsistent 
with  good  faith  on  his  part  to  insist  upon  a  condition  compliance 
with  which  had  been  prevented  by  his  own  conduct." 

That  which  puts  the  hokkr  off  his  guard  is  said  to  be  waiver, 
in  other  cases,  among  them  Gordon  v.  Par  melee,  15  Gray,  413, 
422;  Armstrong  v.  Chadwick,  127  Mass.  156. 

Do  the  facts  stated  in  the  referee's  certificate  establish  that 
the  holder  of  the  note  was  reasonably  put  off  his  guard  by  the 
acts  of  Hodges  ?  I  think  they  do.  Hodges  was  liable  on  the  note 
both  as  maker  and  indorser.  About  a  week  before  maturity  he 
consulted  with  the  holder  regarding  a  general  assignment  of  the 
firm  and  its  partners,  which  assignment  was  made  as  a  result 
of  the  consultation.  The  note  was  discussed,  and  Hodges  told) 
the  holder  that  neither  the  firm  which  made  the  note,  nor  he[ 
himself,  the  partner  who  had  indorsed  it,  could  pay  it  at  maturity./ 
It  is  not  necessary  to  decide  that,  where  the  maker  and  indorser 
of  a  note  are  quite  separate  persons,  the  bare  statement  by  the 
indorser  that  the  maker  will  not  pay  operates  to.  excuse  demand. 
Here  the  maker  and  indorser  were,  in  an  important  sense,  the 
same  person.  Hodges  said,  in  effect,  "I  cannot  pay  you  this  note 
either  as  maker  or  as  indorser."  Doubtless  he  might  have  added, 
"In  spite  of  the  fact  just  stated,  I  require  you  to  go  through  the 


402  Waiver  of  Presentment  and  Demand 

useless  ceremony  of  demanding  payment."  Had  he  said  this, 
there  would  have  been  no  waiver;  but,  in  the  absence  of  such  a 
reservation,  I  think  that  the  holder  reasonably  understood  him 
to  waive  the  useless  ceremony.  Upon  this  understanding  the 
holder  acted.  It  should  be  noticed  that  Hodges  and  his  creditor 
were  not  dealing  at  arm's  length,  or  as  opposing  parties,  but 
were  conferring  about  the  general  condition  of  Hodges'  affairs. 

In  construing  a  term  found  in  a  statute  of  Massachusetts, 
and  previously  defined  in  Massachusetts  decisions,  it  may  be  suf- 
ficient to  refer  to  those  decisions.  As  the  statute  in  question  is 
intended  to  introduce  uniformity  into  the  laws  of  the  several 
states,  it  would  be  unfortunate,  however,  if  the  Massachusetts 
decisions  concerning  waiver  of  demand  were  opposed  to  a  great 
weight  of  authority  elsewhere,  and  to  the  law  merchant  as  gen- 
erally laid  down.  I  do  not  find  that  opposition  exists.  The  defi- 
nitions in  2  Daniel,  Neg.  Inst.  (4th  Ed.)  §  1103,  and  in  2  Pars. 
Notes  &  B.  (2d  Ed.)  p.  582,  are  similar  to  those  declared  by  the 
supreme  court  of  Massachusetts.  In  Bank  v.  Dill,  5  Hill,  403,  no 
waiver  of  demand  was  understood  by  the  creditor  at  the  time 
the  alleged  waiver  took  place.  It  was  set  up  as  an  afterthought 
to  excuse  a  mistake  concerning  the  date  of  the  note.  When  the 
holder  was  asked  by  the  indorser  why  the  note  had  not  been  pre- 
sented for  payment,  he  answered  that  presentment  would  be  made 
that  same  afternoon,  and  claimed  a  waiver  only  after  he  had 
found  out,  to  his  surprise,  that  this  presentment  would  be  too 
late.  In  re  Grant,  Fed.  Cas.  No.  5,691,  the  court  found  that  the 
waiver,  so  far  as  there  was  one,  was  not  made  with  any  regard 
to  the  indorsement,  and  that  all  parties  were  considering  only 
the  rights  of  the  maker.  In  the  case  at  bar  the  indorsement  was 
expressly  referred  to.  I  hold,  therefore,  that  there  was  no  implied 
waiver  of  presentment,  within  the  purview  of  the  statute. 

That  waiver  of  presentment  for  payment,  and  knowledge  of 
nonpayment  arising  from  the  identity  of  the  maker  and  indorser. 
taken  together,  will  excuse  notice  of  nonpayment,  is  a  conclusion 
so  sensible  that  it  must  stand  unless  plainly  opposed  to  the  words 
of  the  statute.  That  this  is  the  law  merchant  is  not  denied.  To 
present  for  payment  in  order  to  charge  an  indorser,  where  the 
indorser  has  already  told  the  holder  that  he  cannot  pay  the  note 
either  as  maker  ®r  as  indorser,  seems  a  useless  ceremony,  but  it  is 
a  matter  of  substantial  importance,  by  comparison  with  giving 
notice  to  the  indorser  who  has  waived  presentment,  that  he,  the 
indorser,  has  not  paid  the  note  as  maker.  The  notice,  if  given, 
would  run  substantially  thus :   "Please  take  notice  that  you  have 


In  re  Swift  403 

not  paid  the  note  which,  in  accordance  with  our  agreement,  I 
have  not  presented  to  you  for  payment."  The  facts  which  were 
held  to  constitute  a  waiver  of  demand  were  held  also  to  consti- 
tute a  waiver  of  notice  in  most  or  all  the  cases  above  cited. 
Waiver  of  notice  seems  to  have  been  implied  from  waiver  of 
presentment.  w-Vvw  ^a^^tN  -v  w^v^v^aa  •— o-~-^  y-o-^V^- 

That  notice  would  be  excused  by  waiver,  even  in  the  absence 
of  an  express  provision  of  statute,  I  am  inclined  to  think ;  but 
this  case  seems  fairly  covered  by  the  statute  itself.  By  section 
115,  notice  of  dishonor  is  not  required  "where  the  indorser  is  the 
person  to  whom  the  instrument  is  presented  for  payment."  The 
instrument  here  was  not  presented  to  Hodges  for  payment, 
because  he  had  given  the  creditor  to  understand  that  presentment 
would  be  useless.  The  exception  was  inserted  to  avoid  the  neces- 
sity of  giving  notice  of  a  fact  which,  by  the  terms  of  the  excep- 
tion, must  be  within  the  personal  knowledge  of  the  man  notified. 
It  is  no  straining  of  language  to  hold  that  the  term,  "person  to 
whom  the  instrument  is  presented  for  payment,"  includes  a  per- 
son to  whom  the  instrument  would  have  been  presented  if  he  had 
not,  both  as  maker  and  as  indorser,  waived  such  presentment. 
The  creditor  is  therefore  entitled  to  prove  against  Hodges'  sep- 
arate estate. 

The  proving  creditor   seeks  to  review  the  decision  of  the  <q,  o^e^— 
referee  in  deducting  from  the  amount  proved  against  the  separate  jj^.,^  <i_*>jvj-<»-*SL 
estate  the  amount  of  the  dividend  declared  on  the  joint  estate.  ^^J^*^  tV*. 
That  a  creditor  may  prove  for  the  full  amount  of  a  note  against  ^       x>_*^<-»/^-* 
both  its  maker  and  indorser.  and  may  collect  from  both  estates  aL^_£_u_>^A>.  ^*> 
dividends  on  such  proof  until  his  whole  debt  is  satisfied,  is  settled  r  ^^^^aJk.  <vv* 
la\\\     Where,  however,  proof  against  the  estate  of  the  indorser  n^^S-^jJ^^-*^ 
is  made  after  part  payment  by  the  maker,  the  proof  must  be  lim-  5L^5GsjLjL.  (   ^a 
ited  to  the  balance  due  on  the  note  after  deducting  the  part  pay-  ^a^o-Sm^    ^-»^* 
ment.     And  it  appears  to  be  settled  that  a  dividend   from  the  V^^  Kx*   ^*- 
estate  of  the  maker,  declared  in  favor  of  the  creditor,  and  payable  4~>~->~^     ^^^ 
before  proof  is  made  against  the  estate  of  the  indorser,  is  the  a^^^*^- 
equivalent  of  actual  part  payment.     In  this  case,  proof  against  Vr^3^^  aA'/, 
the  estate  of  the  maker  was  made  after  the  declaration  of  the  first  ^  (>T^ ** 
dividend.     By  section  65c,  the  creditor  making  proof  after  the  ^^  ^*  * 
declaration  of  the  first  dividend  is  entitled  to  be  paid  "dividends  y^~^x*^**s^' 
equal  in  amount  to  those  already  received  by  the  other  creditors,  v-^^^-**-^ 
if  the  estate  equal  so  much  before  such  other  creditors  are  paid    y^**^  , 
any  further  dividends."    This  right  of  the  creditor  to  a  preference  ^suao  ^a  *^*- 
in  future  dividends  does  not  seem  to  me  equivalent  to  a  declara-   >-v>^.    r>^-<-A. 
tion  of  a  dividend  in  his  favor,  or  to  actual  part  payment  of  the*Xv_x.    \  <a  *]<>■ 


40-4  General  Requisites  of  the  Protest 

note.  In  re  Hicks,  Fed.  Cas.  No.  6,456;  In  re  Hamilton  (D.  C.) 
1  Fed.  800;  In  re  Meyer,  78  Wis.  615,  626,  48  N.  W.  55,  11  L. 
R.  A.  841  ;  Ex  parte  Todd,  2  Rose,  202,  note.  The  estate  might 
not  be  large  enough  to  pay  to  this  creditor  the  rate  declared  in 
favor  of  the  other  creditors.  Considering  the  situation  as  shown 
in  the  finding  of  the  referee  and  in  the  subsequent  stipulation, 
I  think  the  creditor  was  entitled  to  prove  for  the  whole  amount, 
of  the  note  against  the  estate  of  the  indorser. 

The  judgment  of  the  referee  is  reversed,  in  so  far  as  it 
provides  for  a  diminution  of  the  proof  presented 
against  the  separate  estate  of  E.  C.  Hodges;  in  other 
respects  it  is  affirmed. 


V 


Section  IX. — Protest. 

GENERAL  REQUISITES  OF  THE  PROTEST.  §  1 55- 1 58. 

Dennistoun  et  al.  v.  Stewart  (1854),  if  How.  (58  U.  S.)  606. 

This  case  was  brought  up,  by  writ  of  error,  from  the  circuit 
court  of  the  United  States  for  the  southern  district  of  Alabama. 
The  case  is  stated  in  the  opinion  of  the  court. 

It  was  argued  by  Mr.  Phillips,  for  the  plaintiffs  in  error,  no 
counsel  appearing  for  the  defendant. 

Mr.  Justice  Grier  delivered  the  opinion  of  the  court. 

The  plaintiffs  declared  against  the  defendant,  as  drawer  of  a 
bill  of  exchange,  by  the  name  and  style  of  James  Reid  and  Co.,  of 
which  the  following  is  a  copy : 

"No.  — .    £4,417  14s.  1  id.  st'g.  Mobile,  Sept.  9,  1850. 

"Sixty  days  after  sight  of  this  first  of  exchange,  (second  and 
third  unpaid,)  pay  to  the  order  of  ourselves,  in  London,  forty- 
four  hundred  and  seventeen  pounds,  14s.  1  id.  st'g,  value  received, 
and  charge  the  same  to  account  of  1,058  bales  cotton  per  'Wind- 
sor Castle.' 

"Your  obedient  servants, 

"Pr.  pro  James  Reid  &  Co., 
"Wm.  Moult,  Jr. 


Dennistoun  et  al.  v.  Stewart  405 

"To  Hy.  Gore  Booth,  Esq.,  Liverpool. 

"Acceptance  across  the  face  of  the  bill. 
"Seventh  October,   1850.     Accepted  for  two  thousand  five 
hundred  and   seventy-one  pounds  eighteen  shillings  and  seven 
pence,  being  balance  unaccepted  for  acpt.  1,058  bf.  cotton,  pr. 
Windsor  Castle,  payable  at  Glyn  and  Co. 

"Pr.  pro  Henry  Gore  Booth, 
"And.  E.  Byrne. 
"Due  9  Decern. 
"Indorsed : 

"Pay  Messrs.  A.  Dennistoun  and  Co.,  or  order, 

"Pr.  pro  James  Reid  and  Co., 
"Wm.  Moult,  Jr." 

After  reading  this  bill,  with  its  indorsements,  the  plaintiff 
offered  in  evidence  a  regular  protest,  indorsed  on  a  copy  of  a 
bill  agreeing  in  every  particular  with  the  above,  except  that  for 
"And.  E.  Byrne"  was  written  "Chas.  Byrne." 

The  defendant  objected  to  the  reading  of  the  protest  in  evi- 
dence, because  it  did  not  describe  the  bill  of  exchange  produced 
by  the  plaintiffs,  but  a  different  bill.  The  court  sustained  this 
objection,  and  excluded  the  protest  from  the  jury,  which  is  the 
subject  of  the  first  bill  of  exceptions. 

A  protest  is  necessary  by  the  custom  of  merchants  in  case  of 
a  foreign  bill,  in  order  to  charge  the  drawer.  It  is  defined  to  be 
in  form  "a  solemn  declaration  written  by  the  notary  under  a 
fair  copy  of.  the  bilL-SlaljrigL  that  the  payment  or  acceptance  has 
been  demanded  and  refused,  the  reason,  if  any,  assigned,  and 
that  the  bill  is,  therefore, "protested." 

A  copy  of  the  bilt,  it  is  said,  should  be  prefixed  to  all  protests, 
with  the  indorsements  transcribed  verbatim.  1  Pardess.  444; 
Chitty  on  Bills,  458. 

However  stringent  the  law  concerning  mercantile  paper,  with 
regard  to  protest,  demand,  and  notice,  may  appear,  it  is  never- 
theless  founded  on  reason  and  the  necessities  of  trade.  It  exacts 
nothing  harsh,  unjust,  or  unreasonable.  A  protest,  though  neces- 
sary, need  only  be  noted  on  the  day  on  which  payment  was 
refused.  It  may  be  drawn  and  completed  at  any  time  before 
the  commencement  of  the  suit,  or  even  before  the  trial,  and  con- 
sequently may  be  amended  according  to  the  truth,  if  any  mistake 
has  been  made. 

The  copy  of  the  bill  is  connected  with  the  instrument  certify- 
ing the  formal  demand  by  the  public  officer,  as  the  easiest  and 
best  mode  of  identifying  it  with  the  original.     Mercantile  paper 


406  General  Requisites  of  the  Protest 

is  generally  brief,  and  without  the  verbiage  which  extends  and 
enlarges  more  formal  legal  instruments.  Hence,  it  is  much 
easier  to  give  a  literal  copy  of  such  bills,  than  to  attempt  to 
identify  them  by  any  abbreviation  or  description.  The  amount, 
the  date,  the  parties,  and  the  conditions  of  the  bill,  form  the 
substance  of  every  such  instrument.  Slight  mistakes,  or  vari- 
ances  of  letters,  or  even  words,  when  the  substance  is  retained7 
cannot  and  ought  not  to  vitiate  the  protest.  A  lost  bill  may  be 
protested,  when  the  notary  has  been  furnished  with  a  sufficient 
description,  as  to  date,  amount,  parties,  &c,  to  identify  it. 

In  indictments  for  forgery,  it  is  not  sufficient  to  state  the 
-  (  "substance  and  effect"  of  the  instrument ;  it  must  be  laid  accord- 
N  ing  to  the  "tenor,"  or  exact  letter ;  but  the  law  merchant  demands 
J  no  such  stringency  of  construction.    The  sharp  criticism  indulged 
I  when  the  life  of  a  prisoner  is  in  jeopardy  cannot  be  allowed  for 
^X_^,  * the  purpose  of  eluding  the  payment  of  just  debts. 

It  is  unnecessary  that  a  copy  of  the  protest  should  be  included 
in  the  notice  to  the  drawer  and  indorsers.  The  object  of  notice 
is  to  inform  the  party  to  whom  it  is  sent  that  payment  has  been 
refused  by  the  maker,  and  that  he  is  held  liable.  Hence  such  a. 
dj^rip_tion_of_  the  note  as  will  give  sufficient  information  to 
identify  it,  is  all  that  is  necessary.  What  was  said  by  Mr.  Justice 
Story,  in  delivering  the  opinion  of  this  court,  in  Mills  v.  The 
Bank  of  the  United  States,  with  regard  to  variances  and  mis- 
takes in  notices,  will  equally  apply  to  protests :  "It  cannot  be 
for  a  moment  maintained  that  every  variance,  however  imma- 
terial, is  fatal.  It  must  be  such  a  variance  as  conveys  no  sufficient 
knowledge  to  the  party  of  the  particular  note  which  has  been 
dishonored.  If  it  does  not  mislead  him,  if  it  conveys  to  him  the 
real  fact,  without  any  doubt,  the  variance  cannot  be  material, 
either  to  guard  his  rights  or  avoid  his  responsibility." 

In  the  case  before  us.  _the  protest  had  an  accurate  copy  of 
every  material  fact  which  could  identify  the  bill — the  date,  the 
place  where  drawn,  the  amount,  the  merchandise  on  which  it 
was  drawn,  the  ship  by  which  it  was  sent,  the  balance  on  the  cot- 
ton for  which  it  was  accepted,  the  names  of  drawers,  acceptor, 
indorsers ;  in  fine,  every  thing  necessary  to  identify  the  bill.  The 
only  variance  is  a  mistake  in  copying  or  deciphering  the  abbre- 
viations and  flourishes  with  which  the  Christian  name  of  the 
acceptor's  agent  is  enveloped.  The  abbreviation  of  "And."  has 
been  mistaken  for  Chas.,  and  the  middle  letter  E.  omitted.  The 
omission  of  the  middle  letter  would  not  vitiate  a  declaration  or 


Mills  v.  Bank  of  the  United  States  407 

indictment.     Nor  could  the  mistake  mislead  any  person  as  to  the 
identity  of  the  instrument  described. 

We  are  of  opinion,  therefore,  that  the  objection  made  to  this 
protest,  "that  it  does  not  describe  the  bill  of  exchange  produced, 
but  a  different  bill,"  is  not  true  in  fact,  and  should  have  been 
overruled  by  the  court. 

This  renders  it  unnecessary  for  us  to  notice  the  offer  of  testi- 
mony to  prove  the  identity,  which  was  also  overruled  by  the 
court.  X^x.    ^V-o- 

The  judgment  of   the  Circuit  Court  is  reversed,  and 
venire  de  novo  awarded. 


Section  X — Notice  of  Dishonor. 

FORM  OF  THE  NOTICE.  §  98. 

Mills  v.  Bank  of  the  United  States  {1826),  11  Wheat.  (24  U.  S.) 

43i, 

This  cause  was  argued  by  Mr.  Wright,  for  the  plaintiff  in 
error,  and  by  Mr.  Webster,  for  the  defendants  in  error. 

Mr.  Justice  Story  delivered  the  opinion  of  the  court. 

This  is  a  suit  originally  brought  in  the  Circuit  Court  of  Ohio, 
by  the  Bank  of  the  United  States,  against.  A.  G.  Wood  and  George 
Ebert,  doing  business  under  the  firm  of  Wood  &  Ebert,  Alexan- 
der Adair,  Horace  Reed,  and  the  plaintiff  in  error,  Peter  Mills. 
The  declaration  was  for  $3,600,  money  lent  and  advanced.  Dur- 
ing the  pendency  of  the  suit,  Reed  and  Adair  died.  Mills  filed  a 
separate  plea  of  non  assumpsit,  upon  which  issue  was  joined,  and 
upon  the  trial,  the  jury  returned  a  verdict  for  the  Bank  of  the 
United  States  for  $4,641 ;  upon  which  judgment  was  rendered  in 
their  favor.  At  the  trial  a  bill  of  exceptions  was  taken  by  Mills, 
for  the  consideration  of  the  matter  of  which  the  present  writ  of 
error  has  been  brought  to  this  court. 

By  the  bill  of  exceptions  it  appears  that  the  evidence  offered 
by  the  plaintiff's  in  support  of  the  action  "was,  by  consent  of  coun- 
sel, permitted  to  go  to  the  jury,  saving  all  exceptions  to  its  com- 
petence and  admissibility,  which  the  counsel  for  the  defendant 
reserved  the  right  to  insist  in  claiming  the  instructions  of  the 
court  to  the  jury  on  the  whole  case." 


408  Form  of  the  Notice 

The  plaintiffs  offered  in  evidence  a  promissory  note  signed 
Wood  &  Ebert,  and  purporting  to  be  indorsed  in  blank  by  Peter 
Mills,  Alexander  Adair  and  Horace  Reed,  as  successive  indors- 
ers,  which  note,  with  the  indorsements  thereon,  is  as  follows,  to 
wit:    "Chillicothe,  20th  of  Julv,  1819.    $3,600.    Sixty  days  after 
date  I  promise  to  pay  to  Peter  Mills,  or  order,  at  the  office  of 
discount  and  deposit  of  the  Bank  of  the  United  States,  at  Chilli- 
cothe, three  thousand   six  hundred   dollars,  for  value   received. 
Wood  &  Ebert."     Indorsed/    "Pay  to  A.  Adair  or  order,  Peter 
Mills."    "Pay  to  Horace  Re4d  or  order.    A.  Adair."    "Pay  to  the 
President,  Directors  and /Company  of  the  Bank  of  the  United 
States,  or  order.    Horace'  Reed."    On  the  upper  right  hand  cor- 
ner of  the  note  is  also  ir/dorsed:    "3185.    Wood  &  Ebert,  $3,600, 
Sep.  18,  '21."    It  was  proven  that  this  note  had  been  sent  to  the 
office  at  Chillicothe  to/ renew  a  note  which  had  been  five  or  six 
times  previously  renewed  by  the  same  parties.    It  was  proven  by 
the  deposition  of  Le,vin  Belt,  Esq.,  mayor  of  the  town  of  Chilli- 
cothe, that  on  the  2^d  day  of  September,  18 19,  immediately  after 
the  commencement  of  the  hours  of  business,  he  duly  presented 
the  said  note  at  the  said  office  of  discount  and  deposit,  and  there 
demanded  payment  of  the  said  note,  but  there  was  no  person  there 
ready  or  willing  to  pay  the  same,  and  the  said  note  was  not  paid, 
in  consequence  of  which  the  said  deponent  immediately  protested 
the  said  note  for  the  non-payment  and  dishonor  thereof,  and 
immediately  thereafter  prepared  a  notice  for  each  of  the  indorsers 
respectively,  and  immediately  on  the  same  day  deposited  one  of 
said  notices  in  the  postoffice,  directed  to  Peter  Mills,  at  Zanesville 
(his  place  of  residence),  of  which  notice  the  following  is  a  copy: 
"Chillicothe,  22d  of  September,  1819.     Sir,  you  will  hereby  take 
notice  that  a  note  drawn  by  Wood  &  Ebert,  dated  20th  day  of 
September,  1819,  for  $3,600,  payable  to  you,  or  order,  in  sixty 
days,  at  the  office  of  discount  and  deposit  of  the  Bank  of  the 
United  States  at  Chillicothe,  and  on  which  you  are  indorser,  has 
been  protested  for  non-payment,  and  the  holders  thereof  look  to 
you.     Yours,   respectfully,   Levin   Belt,   mayor  of   Chillicothe." 
(Peter   Mills,    Esq.)      It   was   further   proven   by   the   plaintiffs 
,t<U*~-  i^**^  that  it  had  been  the  custom   of  the  banks  in   Chillicothe,   for 
°^JC*w'.r^        a  long  time  previously  to  the  establishment  of  a  branch  in  that 
~*\    place,  to  make  demand  of  promissory  notes  and  bills  of  exchange 
^on  the   day  after  the  last  day  of  grace    (that   is,   on   the  64th 
]^5  *^^*\day)  ;  that  the  branch  bank,  on  its  establishment  at  Chillicothe, 
adopted  that  custom,  and  that  such  had  been  the  uniform  usage 
^^^T^^'in   the   several   banks   in   that   place   ever   since.      No   evidence 


Mills  v.  Bank  of  the  United  States  409 

was  given  of  the  handwriting-  of  either  of  the  indorsers.  The 
court  charged  the  jury,  (i)  that  the  notice  being  sufficient  to  put 
the  defendant  upon  inquiry,  was  good,  in  point  of  form,  to  charge 
him,  although  it  did  not  name  the  person  who  was  holder  of  the 
said  note,  nor  state  that  a  demand  had  been  made  at  the  bank 
when  the  note  was  due.  (2)  That  if  the  jury  find  that  there  was 
no  other  note  payable  in  the  office  at  Chillicothe,  drawn  by  Wood 
&  Ebert,  and  indorsed  by  defendant,  except  the  note  in  contro- 
versy, the  mistake  in  the  date  of  the  note  made  by  the  notary  in 
the  notice  given  to  that  defendant  does  not  impair  the  liability 
of  the  said  defendant,  and  the  plaintiffs  have  a  right  to  recover. 
(3)  That  should  the  jury  find  that  the  usage  of  hanks,  and  of  the 
office  of  discount  and  deposit  in  Chillicothe,  was  to  make  demand 
of  payment,  and  to  protest  and  give  notice  on  the  64th  day,  such 
demand  and  notice  are  sufficient. 

The  counsel  on  the  part  of  the  defendant  prayed  the  court 
to  instruct  the  jury  "that  before  the  common  principles  of  the 
law  relating  to  the  demand  and  notice  necessary  to  charge  the 
indorser  can  be  varied  by  a  usage  and  custom  of  the  plaintiffs,  the 
jury  must  be  satisfied  that  the  defendant  had  personal  knowledge 
of  the  usage  or  custom  at  the  time  he  indorsed  the  note ;  and  also, 
that  before  the  plaintiffs  can  recover  as  the  holder  or  indorser  of 
a  promissory  note,  they  must  prove  their  title  to  the  proceeds  by 
evidence  of  the  indorsement  on  the  note,"  which  instructions  were 
refused  by  the  court. 

Upon  this  posture  of  the  case,  no  questions  arise  for  deter- 
mination here,  except  such  as  grow  out  of  the  charge  of  the  court, 
or  the  instructions  refused  on  the  prayer  of  the  defendant's 
(  Mills')  counsel.  Whether  the  evidence  was,  in  other  respects, 
sufficient  to  establish  the  joint  promise  stated  in  the  declaration, 
or  the  joint  consideration  of  money  lent,  are  matters  not  submitted 
to  us  upon  the  record,  and  were  proper  for  argument  to  the  jury. 

The  first  point  is,  whether  the  notice  sent  to  the  defendant  at 
Chillicothe  was  sufficient  to  charge  him  as  indorser.  The  court 
was  of  opinion  that  it  was  sufficient,  if  there  was  no  other  note 
payable  in  the  office  at  Chillicothe,  drawn  by  Wood  &  Ebert,  and 
indorsed  by  the  defendant.  ^ 

It  is  contended  that  this  opinion  is  erroneous,  because  "the 
notice  was_fatally  defective  by  reason  of  its  not  stating  who  was 
the  lipid errby  reason  of  its  misdescription  of  the  date  of  the  note, 
and^rjy  reason  of  its  not  stating  that  a  demand  had  been  made  at 
the  bank  when  the  note  was  due.  The  first  objection  proceeds 
upon  a  doctrine  which  is  not  admitted  to  be  correct;  and  no 

\ 


410 


Form  of  the  Notice 


authority  is  produced  to  support  it.     No  form  of  notice  to  an 

indorser  has  been  prescribed  by  law.    The  whole  object  of  it  is  to 

irIionriTh~e~ party  to  whom  it  is  sent  that  payment  has  been  refused 

by  the  maker;  that  he  is  considered  liable ;  and  that  payment  is_ 

o^v^»  iMx  JUaMja. Expected  of  him!     It  is  of  no  consequence  to  the  indorser  who 

^n~c*.  v~*>tv*     is  the  holder,  as  he  is  equally  bound  by  the  notice,  whomsoever 

,_aS&  °v^*-  v~,>-  lie  may  be,  and  it  is  time  enough  for  him  to  ascertain  the  true 

title  of  the  holder  when  he  is  called  upon  for  payment. 

The  objection  of  misdescription  may  be  disposed  of  in  a  few 
_a  qI^ab^Xa-w.  words.  It  cannot  be  for  a  moment  maintained  that  every  vari- 
^^Xs  ance,  however  immaterial,  is  fatal  to  the  notice.  It  must  be  such 
a  variance  as  conveys  no  sufficient  knowledge  to  the  party  of  the 
particular  note  which  has  been  dishonored.  If  it  does  not  mislead 
him,  if  it  conveys  to  him  the  real  fact  without  any  doubt,  the 
variance  cannot  be  material,  either  to  guard  his  rights,  or  avoid 
his  responsibility.  In  the  present  case,  the  misdescription  was 
merely  in  the  date.  The  sum,  the  parties,  the  time  and  place  of 
payment,  and  the  indorsement,  were  truly  and  accurately 
described.  The  error,  too,  was  apparent  on  the  face  of  the  notice. 
The  party  was  informed  that  on  the  226.  of  September,  a  note 
^  v^s'o-oi- .£*,)  }n(jorseci  by  nim)  payable  in  sixty  days,  was  protested  for  non- 
V9-*-*  payment ;  and  yet  the  note  itself  was  stated  to  be  dated  on  the 
20th  of  the  same  month,  and,  of  course,  only  two  days  before. 
Under  these  circumstances  the  court  laid  down  a  rule  most  favor- 
able to  the  defendant.  It  directed  the  jury  to  find  the  notice  good 
if  there  was  no  other  note  payable  in  the  office  at  Chillicothe, 
drawn  by  Wood  &  Ebert,  and  indorsed  by  the  defendant.  If  there 
was  no  other  note,  how  could  the  mistake  of  date  possibly  mis- 
lead the  defendant?  If  he  had  indorsed  but  one  note  for  Wood 
&  Ebert,  how  could  the  notice  fail  to  be  full  and  unexceptionable 
in  fact? 

The  lastobjection  to  the  notice  is,  that  it  does  not  state  that 
paymejnt  was  demanded  at_the  bank  when  the  note  became  due. 
It  is  certainly  not  necessary  that  the  notice  should  contain  such 
a  formal  allegation..  It  is  sufficient  that  it  states  the  fact  of  non- 
payment  of  the  note,  and  that  the  holder  looks  to  the  indorser  for 
indemnity.  Whether  the  demand  was  duly  and  regularly  made^ 
is  matter  of  evidence  to  be  established  at  the  trial.     If  it  be  not 


oJC 


legally  made,  no  averment,  however  accurate,  will  help  the  case ; 
and  a  statement  of  non-payment  and  notice  is,  by  necessary  impli- 
cation, an  assertion  of  right  by  the  holder,  founded  upon  his  hav- 
ing complied  with  the  requisitions  of  law  against  the  indorser. 
In  point  of  fact,  in  commercial  cities,  the  general,  if  not  universal, 


Mills  v.  Bank  of  the  United  Stalls  411 

practice  is,  not  to  state  in  the  notice  the  mode  or  place  of  demand, 
but  the*mere  naked  non-payment. 

Upon  the  point,  then,  of  notice,  we  think  there  is  no  error  in   v 
the  opinion  of  the  Circuit  Court. 

Another  question  is,  whether  the  usage  and  custom  of  the 
bank  not  to  make  demand  of  payment  until  the  fourth  day  of 
grace,  bound  the  defendant,  unless  he  had  personal  knowledge  of 
that  usage  and  custom.    There  is  no  doubt  that,  according  to  the 
general  jyles  of  law,  demand  of  payment  ought  to  be  made  on_  (>>-~s-v      ^^^ 
the  third  day,  and  that  it  is  too  late  if  made  on  the  fourth  day  r" 
oj  grace.    Butit  has  been  decided  by  this  court,  upon  full  consid-        ^^^  »w. 
eration  and  argument,  in  the  case  of  Rentier  v.  The  Bank  of  Col-  ^^  6-e->\>/\ 
umbia  (9  Wheat.  Rep.,  582),  that  where  a  note  is  made  for  the    o^umji,   x~jc 
purpose  of  being  negotiated  at  a  bank,  whose  custom,  known_to_  v^V*^.  <*j*> 
the  parties,  it  is  to  demand  payment  and  give  notice  on  the  fourth_  **"*"  ^V-^Oi 
day  of  grace,  that  custom  forms  a  part  of  the  law  of  such  contract,    "*/^*"\Vr'A^1] 
at  least  so  far  as  to  bind  their  rights.     In  the  present  case,  the  Y     <^      &\<>j. 
court  is  called  upon  to  take  one  step  farther;  and  upon  the  prin-  v^^^jc  o^A-*^ 
ciples  and  reasoning  of  the  former  case,  it  has  come  to  the  conclu-  <l*$a/-v.  &^j^Ju 
sion  that  when  a  note  is  made  payable  or  negotiable  at  a  bank,   S^j^j^r^A  "C*> 
whose  invariable  usage  it  is  to^Iemarid  payrnent'and  give  notice  i3^!^  k-h*JOy~~ 
on  tjgrfourth  day  of  grac"e,  the  parties  are  bound  by  that  usage,   .  . 
whether  they  have  a  personal  knowledge  of  it  or  rloF!    In  the  case  j^v    ^^ 
of  sucrTaTnote,  the  parties  are  presumed  by  implication  to  agree   Vj^xvn  <a  aJu 
to  be  governed  by  the  usage  of  the  bank  at  which  they  have 
chosen  to  make  the  security  itself  negotiable. 

Another  question  propounded  by  the  defendant  is,  whether 
the  plaintiffs  were  entitled  to  recover  without  establishing  their  vA    wSla/^j 
title  to  the  note,  as  holders  by  proof  of  the  indorsements.    There  y^*^*.  <-****■- 
is  no  doubt  that,  by  the  general  rule  of  law,  such  proof  is  indispen-  ^»*  cy~*^*_ 
sable  on  the  part  of  the  plaintiffs,  unless  it  is  waived  by  the  other  *VN 
side.    But  in  all  such  cases  the  defendant  may  waive  a  rule  intro-  ^~  V*V 

duced  for  his  benefit ;  and  such  waiver  may  be  implied  for  cir- 
cumstances as  well  as  expressly  given.  It  is  in  this  view  that  the 
rule  of  the  Circuit  Court  of  Ohio  of  1819,  which  has  been  referred 
to  at  the  bar,  deserves  consideration.  That  rule  declares,  "that 
hereafter,  in  any  actions  brought  upon  bond,  bill,  or  note,  it  shall 
not  be  necessary  for  the  plaintiffs  on  trial  to  prove  the  execution 
of  the  bond,  bill  or  note,  unless  the  defendant  shall  have  filed  with 
his  plea  an  affidavit,  that  such  bond,  bill  or  note,  was  not  executed 
by  him."  We  think  the  present  case  falls  completely  within  the 
purview  of  this  rule.  Its  object  was  to  prevent  unnecessary 
expense  and  useless  delays  upon  objections  at  trials,  which  were 


412  Form  of  the  Notice 

frivolous  and  unconnected  with  the  merits.  If  the  rule  attempted 
to  interfere  with  or  control  the  rules  of  evidence,  it  certainly  could 
not  be  supported.  But  it  attempts  no  such  thing.  It  does  not 
deny  to  the  party  the  right  to  demand  proof  of  the  execution  or 
indorsement  of  the  note  at  the  trial ;  but  it  requires  him,  in  effect, 
to  give  notice  by  affidavit,  accompanying  the  plea,  that  he  means 
to  contest  that  fact  under  the  issue.  If  the  party  gives  no  such 
notice,  and  files  no  such  affidavit,  it  is  on  his  own  part  a  waiver 
of  the  right  to  contest  the  fact,  or  rather  an  admission  that  he  does 
not  mean  to  contest  it.  We  see  no  hardships  in  such  a  rule.  It 
subserves  the  purposes  of  justice,  and  prevents  the  accumulation 
of  costs.  It  follows  out,  in  an  exemplary  manner,  that  injunction 
of  the  judiciary  act  of  the  2d  of  March,  1793,  ch.  22,  which 
requires  the  court  of  the  United  States  "to  regulate  the  practice 
thereof,  as  shall  be  fit  and  necessary  for  the  advancement  of  jus- 
tice, and  especially  to  that  end  to  prevent  delays  in  proceedings." 
As  no  affidavit  accompanied  the  plea  of  the  defendant  in  the  pres- 
ent case,  he__had_no  right  to  insist  upon  the  proof  of  the  indorse- 
ments. 

Another  objection  now  urged  against  the  judgment  is,  that 
the  count  demands  $3,600  only,  and  the  jury  gave  damages 
amounting  to  $4,641.  But  there  is  no  error  in  this  proceeding, 
since  the  ad  damnum  is  for  a  larger  sum.  In  all  cases  where 
interest,  not  stipulated  for  by  the  terms  of  the  contract,  is  given 
by  way  of  damages,  the  sum  demanded  in  the  declaration  is  less 
than  the  sum  for  which  judgment  is  rendered.  The  plaintiffs  may 
not  recover  more,  as  principal,  than  the  sum  demanded  as  such 
^x^^VaA-V-  in  the  declaration;  but  the  jury  have  a  right  to  add  interest,  by 
way  of  damages  for  the  delay. 

Some  other  objections  have  been  suggested  at  the  bar,  such 
as,  that  the  jury  had  no  right,  without  evidence,  to  presume  that 
there  was  no  other  note  of  Wood  &  Ebert,  in  order  to  help  the 
misdescription ;  and  that  the  case  proved  was  of  several  liabilities 
of  the  defendants  which  would  not  support  a  declaration  on  a 
joint  contract.  These  questions  have  been  fully  argued  by  coun- 
sel, but  are  not  presented  by  the  record  in  such  a  shape  as  to 
enable  the  court  to  take  cognizance  of  them. 

Upon  the  whole,  it  is  the  opinion  of  the  court  that  the  judg- 
ment ought  to  be  affirmed  with  costs. 


Lysaght  v.  Bryant  -413 

by  whom  notice  given.  §  0,2. 

Lysaght  v.  Bryant  (1830),  9  Common  Bench  46,    (6/  E.  C.  L.) 

Assumpsit.  Defendant  drew  a  bill  of  exchange  to  his  own 
order,  endorsed  it  to  James  Lysaght  and  William  Smithett,  who 
endorsed  it  to  the  plaintiff,  Admiral  Lysaght,  father  of  James. 
James,  however,  retained  the  bill  as  his  father's  agent  and  pre- 
sented it  for  payment  at  maturity.  Upon  payment  being  refused 
Lysaght  &  Smithett  gave  defendant  notice  in  their  firm  name. 
Verdict  for  the  plaintiff,  and  defendant  moved  for  a  rule  nisi  to 
enter  the  verdict  for  the  defendant. 

Maule,  J. — I  am  of  opinion  that  the  notice  of  dishonour  that 
was   given   in   this   case,   was   sufficient.      Lysaght   the   younger 
appears  to  have  acted  as  the  agent  of  his  father,  the  plaintiff.     In 
that  character,  he  received  the  bill  from  Lysaght  &  Smithett,  by 
whom  it  was  sworn  to  have  been  endorsed  before  it  became  due ; 
and  Lysaght  the  younger  proved  that  it  had  ever  since  been  kept 
by  him  amongst  the  documents  which  were  held  by  him  for  his 
father.    It  was  undoubtedly  his  duty  to  see  that  his  father  should 
have  all  proper  remedies  upon  the  bill."   The  bill,  it  seems,  was 
presented  on  the  day  it  became  due,  and  was  dishonoured ;  and 
due  notice  of  dishonor  was  given  by  Lysaght  &  Smithett  to  the 
defendant,  as  drawer.    Lysaght  the  younger  having  due  notice  of  ^^*  V»_*^s>~» 
the  dishonour,  which  operated  as  a  notice  to  Lysaght  &  Smithett,    a^^  S^^^-v^ 
it  was  clearly  competent  to  the  latter,  according  to  the  decided    \KJL<L  jl^>  **o^ 
cases,  to  give  notice  to  all  prior  parties  to  the  bill ;  and  a  notice  so    j\  \^yk>^-  ,  "^ 
given  would  enure  as  a  notice  by  the  party  who  had  given  notice   ^r^   >v«W  , 
to  them.     I  therefore  think  the  defendant  has  had  a  sufficient  v»*^>  **»  ****** 
notice  of  dishonour.    Then,  as  to  the  other  point, — there  was  evi-    <V*S*     j^^"1 
dence  on  both  sides.    It  was  for  the  jury  to  say  whether  the  plain-    V^*^  t* 
tiff's  witness  was  perjured  or  the  defendant's  mistaken.    The  for-    ^^r    ^j^^. 
mer  stated  positively  that  the  endorsement  was  made  before  the       (I 
bill  became  due ;  the  latter,  not  professing  to  have  any  special  rec- 
ollection on  the  subject,  merely  stated  that  it  was  the  usual  course 
of  his  office  to  copy  all  endorsements  into  the  book  which  he 
produced,  and  that  no  such  endorsement  was  entered  therein.     I 
think  it  is  impossible  for  us  to  say  that  the  jury,  in  giving  credit 
to  the  positive  statement,  rather  than  to  the  inference  arising  from 
the  statement,  on  the  other  side,  came  to  a  wrong  conclusion. 


414  By  Whom  Notice  Given 

Cresswell,  J. — I  am  of  the  same  opinion.  Two  questions 
arose  in  this  case — first,  whether  the  defendant  had  received  a 
sufficient  notice  of  dishonour, — secondly,  whether  Lysaght  & 
Smithett  endorsed  the  bill  before  it  became  due.  The  decision  of 
the  first  question  depends  in  some  degree  upon  the  second; 
because,  whether  the  notice  was  sufficient  or  not,  may  depend 
upon  whether  there  was  a  proper  endorsement.  Mere  writing  on 
the  back  of  the  bill  is  not  enough  to  constitute  an  endorsement ; 
there  must  be  a  delivery,  or  something  equivalent  to  a  delivery, 
of  the  bill  to  the  endorsee.  Here,  the  fact  has  been  disposed  of 
by  the  jury;  and  I  think  there  was  evidence  enough  to  justify  the 
conclusion  they  came  to.  James  Lysaght  swore  positively  that 
the  bill  was  endorsed  in  the  name,  and  with  the  concurrence  of 
the  firm,  in  July  or  August;  and  he  further  stated,  that  ever  since 
the  endorsement,  it  had  been  kept  by  him,  as  his  father's  agent, 
apart  from  the  securities  of  the  firm.  That  being  so,  it  seems, 
from  the  cases,  that  the  holder  of  a  bilLmax  avail  himself  of  a 
notice  of  dishonour  given  in  due  time  by  a  prior  endorsee,  provide^ 
he  himself  is  in  a  condition  to  sue  the  party  by  whom  the  notice 
was  given.  Here,  Lysaght  the  younger,  holding  the  bill  as  his 
Father's  agent,  duly  presented  it,  and  had  it  returned  to  him  dis- 
honoured. Notice  of  that  fact  to  him,  therefore,  operating  as 
notice  to  the  firm,  the  present  plaintiff  was  entitled  to  sue  them, 
and,  consequently,  is  in  a  condition  to  avail  himself  of  the  notice 
of  dishonour  given  by  them  to  the  defendant. 

Williams,  J. — I  am  of  the  same  opinion.  The  evidence  estab- 
lished the  whole  case,  if  the  jury  were  right  in  the  conclusion  to 
which  they  came :  and  I  am  not  prepared  to  say  that  they  were 
wrong. 

Wilde,  C.  J. — I  certainly  was  not  dissatisfied  with  the  ver- 
dict. Lysaght  the  younger  swore  positively  that  the  security  in 
question  was  appropriated  by  him,  with  Smithett's  assent,  in  part 
discharge  of  the  debt  due  to  the  plaintiff.  He  was  very  strictly 
cross-examined  as  to  the  period  at  which  the  endorsement  took 
place :  he  distinctly  swore  that  it  was  before  the  bill  became  due : 
he  believed  it  was  in  July  or  August.  If  Lysaght  &  Smithett 
intended  to  act  honestly,  they  were  bound  to  make  the  endorse- 
ment ;  and  there  is  no  reason  for  supposing  that  they  did  not,  or 
that  James  Lysaght  stated  that  which  was  untrue.  On  the  other 
hand,  there  can  be  as  little  doubt  that  the  notary's  clerk  meant  cor- 
rectly to  copy  the  endorsements  into  the  book.  It  was  for  the  jury 
to  decide  between  the  conflicting  statements.    As  to  the  notice  of 


Traders'  National  Bank  v.  Jones  415 

dishonour,  the  case  seems  to  fall  within  the  authorities.  The  facts 
show  that  Lysaght  &  Smithett  had  due  notice  of  the  dishonour  of 
the  bill, — one  of  them  having  caused  it  to  be  presented,  and  hav- 
ing had  it  returned  to  him.  A  notice,  therefore,  by  Lysaght  & 
Smithett,  then  being  under  a  liability  to  the  present  plaintiff, 
according  to  the  authorities,  enures  as  a  notice  to  the  defendant. 

Rule  refused. 

NOTICE  BY  AGENT.  §§  92,  93. 

Traders'  Nat.  Bank  v.  Jones  (1905),  104  App.  Div.  433,  93  N.  Y. 

Supp.  768. 

Appeal  from  Trial  Term,  New  York  county. 

Action  by  the  Traders'  National  Bank  against  Frank  Cazen- 
ove  Jones.  From  a  judgment  in  favor  of  plaintiff,  and  from  an 
order  denying  defendant's  motion  for  a  new  trial,  he  appeals. 
Affirmed. 

Argued  before  Van  Brunt,  P.  J.,  and  McLaughlin,  Pat- 
terson, Ingraham,  and  Laughlin,  JJ. 

James  H.  Warner,  for  appellant. 
Grant  C.  Fox,  for  respondent. 

Laughlin,  J.  The  action  is  brought  to  recover  of  the 
defendant,  as  indorser,  the  amount  of  two  promissory  notes  and 
protest  fees.  The  question  presented  for  determination  is  whether 
the  evidence  shows  as  matter  of  law  the  giving  of  due  notice  of 
protest  to  the  defendant.  Both  notes  were  made  at  Scranton,  Pa., 
by  the  copartnership  firm  ©f  C.  F.  Beckwith  &  Co.,  of  that  city. 
They  were  payable  to  the  order  of  the  defendant,  indorsed  by 
him,  and  then  indorsed  by  the  makers  and  delivered  to  the  plain- 
tiff before  maturity,  at  whose  bank  they  were  payable.  The 
notary  who  protested  the  notes  was  called  by  the  plaintiff.  His 
testimony  is  sufficient  to  show  due  presentation,  demand,  dis- 
honor, and  protest,  but  concerning  the  mailing  of  the  notice  of 
protest  to  the  defendant  it  was  indefinite  and  uncertain  both  as  to 
time  and  address,  and  conflicted  with  other  evidence  presented 
by  the  plaintiff.  He  testified  that  he  addressed  the  notice  to  the 
defendant  at  some  place,  the  number  he  could  not  remember, 
between  60  and  70  Central  Park  West,  city  of  New  York,  and 
that  he  obtained  the  defendant's  address  from  C.  F.  Beckwith. 
one  of  the  makers ;  but  he  does  not  expressly  state  that  he 
addressed  the  envelope  according  to  the  address  he  received  from 


41b  Notice  by  Agent 

Beckwith.     Beckwith  was  also  called  by  the  plaintiff,  and  gave 
the  defendant's  residence,  place  of  business,  and  other  addresses 
for  receiving  mail  at  that  time,  none  of  which,  however,  was 
;  Central  Park  West;  and  further  testified  that  the  defendant  had 

had  an  apartment  in  Central  Park  West,  but  does  not  specify 
the  time  or  place.    He  was  not  asked  concerning  the  address  that 
he  gave  the  notary.     Beckwith  testified  that  the  defendant  was 
j^v^v  -wU^fvSL  ^  a  member  of  his  firm._   It  may  be  that  the  jury  would  have  been 
^jo-cV-e,^-^  \  justified  in  finding  that  the  notary  addressed  the  notice  to  an 
,&.  ^**>-«-a-   «<  address  given   by   Beckwith,   the  defendant's  partner,   and  that 
e-^>  aJlAaj^***^,  this  would  be  a  full  compliance  with  the  duty  of  exercising  proper 
^^^^wa^y^iiiigence  to  ascertain  the  postoffice  address  and  notify  the  indor- 
,  \xm.  sj-*X>-^  j  ser  0£  tjle  disilonor  of  the  paper,  which  is  a  condition  precedent 
l^to  his  liability.     (Spencer  v.  Bank  of  Salina,  3  Hill,  520;  Univer- 
sity Press  v.  Williams,  48  App.  Div.  188,  62  N.  Y.  Supp.  986; 
Requa  v.  Collins,  51  N.  Y.  144;  Gaivtry  v.  Doane,  id.  84,  92). 
^jX^st^j^        The  court,  however,  was  not  warranted  in  attempting-  to  recon- 
^s^  ^-  <5U-    cile  this  conflict  of  testimony  and  in  deciding  the  question  as  one 
-^-N**\  of  law^     The  verdict,  therefore,  cannot  be   sustained  upon  the 

^^S  T  «v  direct  notice  to  the  defendant.  The  notary  gave  due  and  timely 
■^x*~  c^r"  .  notice  of  protest  to  the  defendant's  firm,  who  were  both  makers, 
and  in  form,  at  least,  subsequent  indorsers.     If  the  plaintiff  had 


»     alleged  that  the  defendant  was  a  member  of  the  firm,  I  am  of 


-—      opinion  that  he  would  be  chargeable  with  knowledge  of  the  dis 


v^<vvo^-3l    honor  and  with  the  notice  given  to  his  firm  as  indorsers  (Gozvan 
Tjt  -!L>si<-*-     v.  Jackson,  20  Johns.   176;  Hall  id  ay  v.  McDougall,  22  Wend. 
q^jb^jj^     264,  272.    See,  also,  Negotiable  Instruments  Law,  Laws  1897,  p. 
■j-o-o  ^w*^*-8-      739'  c-  6I2>  §§  170,  185,  186)  ;  but  this  was  not  pleaded,  and,  since 
ty  \^jL*  90L/&."  it  was  not  an  issue,  there  is  no  justice  or  propriety  in  seizing  upon 
vju,  a>A-,jvO~**  this  item  °f  evidence,  although  admitted  without  objection  that 
juC  *y>tN~~*-    it  was  not  pleaded,  for  the  purpose  of  holding  the  defendant. 
j-*^,  v~>*L  rx>»^&  The  verdict  should  stand  or  fall  upon  the  issues  as  tried.     The 
^  £^  ^**^--notice  to  the  firm,  however,  was  received  either  on  the  day  the 
note  fell  due  or  on  the  morning  of  the  day  following.     With  it 
came,  under  separate  cover,  addressed  to  the  defendant,  care  of 
the  firm,  a  formal  notice  of  protest  by  the  notary  in  behalf  of  the 
plaintiff  directed  to  the  defendant,  and  the  firm  were  requested  to 
forward  the  same  to  him.     Mr.  Beckwith  testified  that  immedi- 
ately upon  receiving  this  notice  he  inclosed  it  in  an  envelope  and 
addressed  it  to  the  defendant  at  his  regular  place  for  receiving 
mail  in  the  city  of  New  York,  which  was  in  care  of  his  counsel 
on  this  appeal.     The  notary,  who  was  a  member  of  the  bar  of 
Pennsylvania,  testified  that  the  statutory  law  of  that  state  required 


Traders'  National  Bank  v.  Jones  417 

that  the  notice  of  protest  to  an  indorser,  when  served  by  mail, 
be  addressed  either  to  his  residence  or  place  of  business,  or  last 
place  of  residence.  If  this  testimony  is  to  be  construed  liter- 
ally, it  indicates  that  the  rule  in  Pennsylvania  is  more  restricted 
than  the  requirements  of  the  law  merchant  or  of  the  negotiable 
instruments  law  as  adopted  in  this  and  many  other  states,  includ- 
ing Pennsylvania  (Act  of  Assembly  of  Pennsylvania  No.  162, 
1901  [P.  L.  194]),  in  that  under  them,  if  the  indorser  has  not 
designated  an  addres  on  the  instrument,  notice  to  any  address 
where  he  is  accustomed  to  receive  mail  would  be  sufficient.  (Ran- 
som v.  Mack,  2  Hill,  587,  38  Am.  Dec.  602;  Van  Vechtcn  v. 
Pruyn,  13  N.  Y.  549,  555).  This  question  would  not  have  arisen 
had  the  plaintiff's  counsel  introduced  the  statute,  instead  of  tak- 
ing the  opinion  of  the  notary,  which  was  manifestly  not  only 
erroneous  on  the  law,  but,  as  he  construed  the  law,  it  is  doubtful 
whether  the  notice  would  be  sufficient.  We  think  that  the  verdict 
may  be  saved,  however,  upon  the  theory  that  this  evidence  was 
incompetent  to  prove  statutory  law  (Code  Civ.  Proc,  §942; 
Hynes  v.  McDermott,  82  N.  Y.  41,  54,  37  Am.  Rep.  538;  Lincoln 
v.  Battcllc,  f>  Wend.  475  ;  Chanoine  v.  Fozvlcr,  3  Wend.  173)  ; 
and,  even  if  the  plaintiff,  having  introduced  it,  is  bound  by  it,  it  is 
insufficient  to  establish  that  the  law  of  Pennsylvania  on  this  point 
is  different  from  the  law  merchant,  and  should  be  so  construed  as 
to  be  ..consistent  therewith. 

Although  it  presumptively  appears  from  the  face  of  the  notes 
and  the  indorsements  that  the  defendant  was  an  accommodation 
indorser  for  the  makers  (Smith  v.  IVcston,  159  N.  Y.  194,  54 
N.  E.  38;  Nat.  Bank  v.  German  American  M.  IV.  Co.,  116  N.  Y. 
281,  22  N.  E.  567,  5  L.  R.  A.  673),  and  therefore  would  not  be 

Hable  to  them,  and  consequently  they  could  not,  in  their  own  behalf,  < ^Juot^^    <r™ 

give  him  a  valid  notice  of  protest  ( Negotiable  Instrument  Law,   V«J^^JL  (  W# 

Laws  1897,  p.  739,  c.  612,  §  161 ;  Cabot  Bank  v.  Warner,  92  Mass.  M>jl*^    o<w^su£  J 

522;  Harrison  v.  Roscoe,  15  M.  &  W.  231 ;  Stanton  v.  Blossom,  *-*  *~^    °^ ¥**** 

14  Mass.  116,  120,  7  Am.  Dec.  198;  Story  on  Promissory  Notes, 

§  3°3  r7th  Ed. 1).  yet  thev  could  on  behalf  of  the  bank,  and  as  its 

agents,  give  the  notice  by  forwarding  it  immediately,  as  was  done 

(Negotiable  Instruments  Law.  Laws  1897.  p.  739,  c.  612.  §§  162, 

163;  Sewall  v.  Miller,'  16  N.  Y.  235;  Smith  v.  Poillon,  87  N.  Y. 

590,  41  Am.  Rep.  402;  Eagle  Bank  v.  Hathazvay,  46  Mass.  212; 

Rowe  v.  Tipler,  13  C.  B.  249;  Chapman  v.  Kcane,  3  Adol.  &  L. 

193;  Lysaght  v.  Bryant,  19  L.  J.  C.  P.  160). 

It  follows,  therefore,  that  the  judgment  and  order  should  be 
affirmed,  with  costs.  All  concur,  except  Wan  Brunt,  P.  I.,  who 
dissents. 


418  Notice  to  Whom 

notice  to  whom.  §  91. 

Linn  ct  al.  v.  Morton,  imp.  (1863),  17  Wis.  157. 

Appeal  from  the  Circuit  Court  for  Rock  county. 

Yates  and  Gray,  for  value,  gave  their  note,  indorsed  for 
them  by  Horton  before  delivery,  and  payable  to  the  plaintiffs  or 
order  at  the  Rock  County  Bank,  at  Janesville,  in  this  state.  Before 
the  note  became  due,  the  plaintiffs,  who  were  merchants  in  the 
city  of  New  York,  indorsed  it  for  collection  to  Kissam  &  Taylor, 
bankers  in  the  same  city,  who  indorsed  it  and  sent  it  for  collection 
to  the  Central  Bank  of  Wisconsin,  at  Janesville.  Default  having 
been  made  in  its  payment  when  due,  to  wit,  November  22,  1861, 
it  was  duly  protested,  and  on  the  same  day  the  note  and  notice 
of  protest  for  Horton,  and  like  notices  for  Kissam  &  Taylor  and 
the  plaintiffs  respectively,  were  enclosed  in  an  envelope  and 
deposited  in  the  postoffice  at  Janesville,  postpaid,  directed  to 
Kissam  &  Taylor,  who  received  the  same  November  27.  On  the 
same  day  Kissam  &  Taylor  delivered  to  the  plaintiffs  the  notices 
addressed  to  them  and  to  Horton  respectively ;  and  the  plaintiffs, 
on  the  same  day,  enclosed  the  notice  to  Horton  in  an  envelope 
directed  to  him  at  Janesville,  and  deposited  the  same  postpaid, 
in  the  postoffice  at  New  York ;  but  the  notice  was  never,  in  fact, 
received  by  Horton.  This  action  was  brought  against  Horton 
together  with  the  makers ;  but  the  Circuit  Court  found  that  "the 
notary  who  protested  the  note  did  not  use  due  diligence  to  ascer- 
tain the  residence  of  Horton,"  and  thereupon  held  that  proper 
steps  had  been  not  taken  to  charge  him,  and  rendered  judgment 
in  his  favor ;  from  which  the  plaintiffs  appealed. 

Conger  &  Hawcs,  for  appellants. 
Charles  G.  Williams,  for  respondent. 

By  the  court,  Dixon,  C.  J.  It  is  an  established  principle  of 
mercantile  law,  that  if  the  holder  ofa  bill  or  note  chooses  to  rely 
upon  the  responsibility  of  his  immediate  indorser,  there  is  no 
necessity  for  his  giving  notice  to  any  previous  party;  and  it 
such  notice  be  properly  given,  in  due  time,  by  the  other  parties,  it 
will  enure  to  the  benefit  of  the  holder,  and  he  may  recover  thereon 
against  any  ot  them.  Thus,  it  the  holder  notifies  the  sixth  indor- 
ser, and  he  the  fifth,  and  so  on  to  the  first,  the  latter  will  be  liable 
to  all  the  parties.  (1  Parsons  on  Bills  and  Notes,  503,  504;  and 
Edwards  on  Bills  and  Notes,  473,  474,  and  the  cases  cited).    And 


Linn  et  al.  v.  Horton  419 

it  is  no  objection  to  such  notice  that  it  is  not  in  fact  received  so 
soon  by  the  first  or  any  prior  indorser,  as  if  it  had  been  trans- 
mitted directly  by  the  holder  or  notary,  provided  it  has  been 
seasonably  sent  by  each  indorser  as  he  receives  it.  (Colt  v.  Noble, 
5  Mass.,  167;  Mead  v.  Engs.}  5  Cow.,  303;  Howard  v.  Ives,  1 
Hill,  263).  And  jJTe_same  degree  of  diligence  must  be  exercised 
on  the  part  of  the  indorser  in  forwarding  notice  as  is  required 
of  the  holder.  Ordinary  diligence  must  be  used  in  both  cases. 
He  is  not  bound  to  forward  notice  on  the  very  day  upon  which 
he  receives  it,  but  may  wait  until  the  next.  (Howard  v.  Ives, 
and  the  authorities  cited). 

For  the  purpose  of  receiving  and  transmitting  notices,  those. ) 
whojiold  at  the  time  of  protest,  and  thosejvho  indorse  as  mere,/' 
agents  to  collect,  are  regarded  as  real  parties  to  the  bill  or  note ;  ' 
The  former  as  holders  in  fact,  and  the  latter  as  actual  indorsers  J 
for  value.     (Mead  v.  Engs;  Howard  v.  Ives). 

It  follows  from  these  principles,  that  the  proper  steps  were 
taken  to  charge  the  defendant  Horton  as  indorser.  Notice  for 
him  was  forwarded  by  mail,  postpaid,  on  the  day  of  the  protest,  to 
the  agents  and  last  indorsers  in  New  York,  and  delivered  by  them, 
on  the  day  it  was  received,  to  the  plaintiffs,  their  immediate 
indorsers,  who,  on  the  same  day,  deposited  it,  inclosed  in  an 
envelope  postpaid,  in  the  postoffice  at  New  York,  directed  to  the 
defendant  at  Janesville,  Wisconsin,  his  proper  postoffice. 

Under  these  circumstances,  the  only  question  which  can  pos- 
sibly arise  is,  whether  the  defendant  ought  to  be  discharged  by 
reason  of  the  notice  not  having  been  in  fact  received  by  him.  He 
testified  that  it  was  not.  Professor  Parsons  observes,  that  in  all 
the  cases  of  constructive  notices,  where  notice  given  by  a  subse- 
quent to  a  prior  indorser  has  been  held  to  enure  to  the  benefit 
of  the  immediate  indorser,  it  has  appeared  that  the  notice  was 
actually  received  ;  and  he  raises  a  question  whether  this  would  ^ 
be  so  if  the  notice  was  sent  to  the  wrong  place.  ( 1  Pars,  on-  ^V 
Notes  and  Bills,  504,  note,  and  627).  But  here  the  notice 
was  sent  to  the  right  place.  Besides,  the  plaintiffs,  who  seek  to 
avail  themselves  of  the  notice,  are  the  indorsers  who  sent  it  to 
the  defendant  as  the  indorser  next  immediately  preceding  them. 
We  have  already  seen  that  the  rule  of  diligence  as  to  them  is  the 
same  as  in  the  case  of  the  holder.  J>  ^Lc^Xa/v. 

Let  the  judgment  be  reversed,  and  the  cause  remanded 
with  directions  to  enter  judgment  in  favor  of  the 
plaintiffs  according  to  the  demand  of  the  complaint. 


420  Notice  to  Bankrupt 

notice  by  inurement.  §  94"95- 

Lysaght  v.  Bryant.     (See  page  413.) 


NOTICE  TO  PARTNERS.  §  IOI. 

Fourth  Nat.  Bank  v.  Heuschen.     (See  page  365.) 


NOTICE  TO  BANKRUPT.  §  IO3. 

Am.  Nat.  Bank  v.  Junk  Bros  (1895),  94  Tenn.  624. 

Appeal  from  Chancery  Court  of  Davidson  county.  Andrew 
Allison,  Ch. 

/.  M.  Gaut  and  J.  S.  Pilcher,  for  Bank. 
A.  N.  Grisham,  for  Junk  Bros. 

Beard,  J.  This  suit  was  instituted  against  the  Junk  Bros. 
Lumber  &  Manufacturing  Co.,  a  corporation  with  its  situs  in 
Nashville,  as  the  indorser  for  value  of  certain  domestic  negotiable 
notes.  The  defendant  resisted  recovery  on  the  ground  that 
notice  of  dishonor  of  the  paper  was  not  given  as  the  law  requires. 
A  decree  having  been  pronounced  against  the  corporation,  it  has 
filed  the  record  in  this  court,  and  the  action  of  the  court  below 
in  overruling  this  defense  is  assigned  as  error. 

Before  coming  to  the  general  question  raised  by  the  assign- 
ments, it  is  proper  to  dispose  of  five  of  these  notes,  which  are 
shown  by  the  proof  to  have  been  made  for  the  accommodation  of 
thiscorporation  and  afterwards  indorsed  by  it  to  the  complainant. 
As  to  these  notes,  their  makers  stood  in  the  situation  of  sureties 
to  the  indorser,  and  it  was  the  latter  s  duty  to  provide  funds  to 
meet  them  at  maturity,  and  it  was,  therefore,  bound  to  the  holder 
without  presentment,  protest,  or  notice.  (2  Am.  &  Eng.  Ency. 
of  Law,  399;  2  Daniel  on  Nego.  Ins.,  Sec.  1085;  3  Randolph  on 
Com.  Paper,  Sec.  1205;  Black  v.  Fizer,  10  Heis.,  48).  Thus  dis- 
posing of  those  five  notes,  the  question  recurs  as  to  the  liability 
of  the  defendant  as  indorser  of  the  remaining  thirty-five. 

The  facts  disclosed  in  the  record  are,  that,  for  a  consider- 
able period  of  time,  the  Junk  Bros.  Lumber  &  Manufacturing  Co. 
were  engaged  in  manufacturing  in  Nashville,  with  its  business 


American  National  Bank  v.  Junk  Bros.  421 

office  located  at  the  corner  of  First  and  Woodland  streets,  in  that 
city.  Its  books  were  kept  there  and  there  its  mail,  with  that  of 
its  principal  officers  and  its  various  employes,  was  delivered.  On 
May  28,  1892,  the  corporation  being  insolvent,  made  a  general 
assignment  of  all  its  property,  both  real  and  personal,  to  one 
Stainback,  as  assignee,  for  the  benefit  of  all  its  creditors.  This 
assignment  was  a  full  surrender  to  the  assignee,  and,  by  its 
terms,  "vested  him  with  all  power  and  authority  to  do  all  acts 
and  things  which  may  be  necessary  in  the  premises  to  the  full 
extent  of  the  trust"  created,  and  it  authorized  him  "to  ask, 
demand,  recover  and  receive  of  and  from  all  and  every  person  or 
persons,  all  property,  debts,  and  demands  due,  owing,  and  belong- 
ing to"  said  assignee,  and  "to  give  acquittances  and  discharges 
for  the  same,  to  execute  and  deliver  deeds,"  and  to  use  the  name 
of  the  assignor  whenever  the  purpose  of  the  trust  required. 

Immediately  on  the  execution  of  the  assignment,  the  assignee 
took  charge  of  the  property  covered  by  it,  and  went  into  posses- 
sion of  the  office  of  the  corporation;  with  its  books,  iron  safe,  etc., 
and  employed  at  this  office  a  young  man  to  do  such  clerical  work 
as  was  required  in  the  administration  of  the  trust.  For  a  limited 
time  after  the  day  of  the  appointment,  with  the  old  employes  of 
the  corporation,  he  continued  to  run  its  machinery  for  the  pur- 
pose of  converting  its  raw  material  into  manufactured  goods.  In 
winding  up  the  affairs  of  this  trust,  he  took  into  his  service,  as 
such  assignee,  one  Spain,  who  was  a  stockholder  as  well  as  the 
director  and  general  manager  of  this  corporation  at  the  date  of 
the  assignment,  and  who  continued,  according  to  the  testimony 
in  the  case,  to  sustain  these  relations  to  it  after  that  date.  It  is 
true  the  duties  imposed  by  the  assignee  upon  Spain  made  it  neces- 
sary for  him  to  be  principally  in  the  yard  and  about  the  plant,  but 
the  proof  is,  that  he  was  in  this  office  every  day,  and  sometimes 
more  than  once  during  the  day.  The  mail  of  the  corporation  was 
delivered  there  as  before,  and,  assuming  to  be  entitled  to  the  con- 
trol of  it,  the  assignee  opened  it  personally  or  by  his  clerk,  and 
gave  it  such  attention  as  it  required,  and  no  officer  of  the  corpora- 
tion ever  called  in  question  his  right  to  control  it,  although,  in 
the  nature  of  things,  all  the  officers  must  have  known  that  he  was 
receiving  it  and  so  dealing  with  it. 

After  the  assignment  the  corporation  abandoned  business, 
and  all  of  its  executive  officers  (with  the  single  exception  of  the 
general  manager)  were  scattered,  and  each  one  pursued  his  own 
private  affairs  at  other  points  in  the  city  of  Nashville.  After  that 
time  it  had  no  other  office,  and  there  were  but  two  meetings  of 


422  Notice  to  Bankrupt 

the  board  of  directors,  and  these  were  held  in  private  offices,  and 
with  regard  to  past  and  unimportant  transactions.  Beginning 
with  the  date  of  the  assignment,  and  for  several  months  there- 
after, the  paper  sued  on  matured,  and  payment  on  proper  demand 
having  been  refused,  it  was  protested  by  a  notary  public,  and 
notice  of  the  protest  in  each  instance,  save  two,  was  directed  by 
him  to  the  corporation  by  name,  and  was  left  by  him  at  the  office 
heretofore  mentioned.  In  the  two  excepted  cases,  or  instances, 
the  notices  were  addressed  to  "George  W.  Stainback,  Assignee 
of  the  Junk  Bros.  Lumber  &  Manufacturing  Company."  In  all 
these  cases,  as  notices  were  received,  the  clerk  of  the  assignee 
entered  a  memorandum  of  the  protest  in  the  books  of  the  corpora- 
tion kept  by  him,  and  generally  deposited  these  notices  in  the 
safe.  The  officers  of  the  corporation  insist  that  they  did  not 
receive  these  notices.  Conceding  this  to  be  true,  is  the  defend- 
ant bound  as  indorser  under  the  foregoing  facts,  notwithstanding 
the  lack  of  actual  receipt  of  these  notices? 

Where  the  indorser  has  failed  to  receive  notice,  he  is  dis- 
charged unless  the  holder  can  show  that  he  has  used  due  dili- 
gence in  his  effort  to  communicate  notice.  Where  this  can^_be 
shown,Jiowever,  it  is  immaterial  that  the  notice  does  not  reach 
the  indorser.  (Harris  v.  Robinson,  4  Howard  [U.  S.],  336).  So 
it  is,  that  kgal  notice  is  not  necessarily  actual  notice.  (SciCO 
National  Bank  v.  Sanborn,  63  Maine,  340).  Thus,  an  indorser 
who  changes  his  residence  without  the  knowledge  of  the  holder  of 
the  protested  paper,  is  bound  by  notice  sent  to  his  former  place  of 
rjsidence^if  the  holder  is  not  guilty  of  negligence  in  his  failure 
to  have  knowledge  of  the  change.  In  such  a  case  the  holder, 
jn  the  absence  of  any  fact  to  put  him  on  inquiry,  can  well 
assume  that  the  indorser's  residence  continues  where  it  for- 
merly was.  He  is  not  bound  to  go  upon  the  street  to  ascertain  a 
fact  which  he  has  the  right  to  assume  he  already  knows.  (Saco 
National  Bank  v.  Sanborn,  supra;  Bank  of  Utica  v.  Phillips,  3 
Wend..  408;  Rcqua  v.  Collins,  51  N.  Y.,  148;  2  Daniel  on  Neg. 
Inst.,  Sec.  1083 ;  3  Randolph  on  Com.  Paper,  Sec.  1281 ;  Harris 
v.  Memphis  Bank,  4  Hum..  518). 

The  well-established  rule  is  that,  where  personal  notice  is 
not  given,  the  notice  must  be  sent  to  the  place  where  the  indorser 
will  be  most  likely  to  receive  it,  and,  if  there  is  reasonable  dili- 
gence exercised  by  the  holder  in  ascertaining  this  place,  this  is 
all  the  law  demands. 

The  Bank  of  America  v.  Shaw,  142  Mass.,  290  (S.  C,  7  N. 
E.  R.,  779),  is,  in  many  respects,  similar  to  this  case,  and  will 


American  National  Bank  v.  Junk  Bros.  423 

serve  to  illustrate  this  rule.  The  facts  in  that  case  were  that  F. 
Shaw  &  Co.  had  done  business  at  268  Purchase  street,  in  Boston, 
and,  while  so  engaged,  indorsed  the  paper  in  question.  Before 
its  maturity,  the  firm  became  insolvent,  and  made  a  general 
assignment  to  one  Wyman  for  the  benefit  of  their  creditors.  The 
assignee  took  possession  of  the  office  of  the  firm,  and  used  it  in 
the  administration  of  his  trust,  but  he  permitted  the  sign  of  the 
firm  to  remain  tacked  to  the  door.  At  the  maturity  of  the  paper, 
F.  Shaw  was  a  fugitive  from  Massachusetts,  and  in  hiding  in 
Canada.  The  notice  of  protest  addressed  by  the  notary  to  the 
firm,  by  its  proper  name,  was  left  by  him  at  this  office.  F.  Shaw, 
when  subsequently  sued  on  this  paper,  defended  upon  the  ground 
that  this  notice  was  not  sufficient  to  bind  him,  but  the  court  held 
that  it  was  good,  "because  it  was  sent  to  what  had  been  the  place 
of  business  of  the  firm,  where  its  affairs  were  actually  in  process 
of  settlement  under  the  trust."  It  is  true  that,  in  the  opinion 
announced,  the  fact  of  Shaw  being  a  fugitive  at  the  time  of  the 
notice  is  given  its  due  weight  by  the  court,  but  this  was  not,  by 
any  means,  controlling  in  the  conclusion  reached. 

So,  in  ex  parte  Baker,  L.  R.,  4  Ch.  Div.,  795,  the  facts  were, 
that  Bellman  &  Co.,  who  had  done  business  at  "Oak  Brewery," 
but  were  no  longer  doing  so,  drew  drafts  on  one  Hay,  which 
were  dishonored.  Before  their  maturity,  Bellman  had  become 
bankrupt,  and  a  trustee  had  been  appointed  for  his  estate.  Notice 
of  dishonor  was  directed  to  the  drawers  at  "Oak  Brewery,"  and, 
yet,  in  the  absence  of  proof  that  the  trustee  was  in  possession  of 
the  old  place  of  business  of  the  firm,  the  notice  was  held  to  be 
sufficient. 

Again,  in  Casco  National  Bank  v.  Shaw,  79  Maine,  376  (S, 
C,  10  At.  Rep.,  67),  upon  facts  like  those  considered  in  Bank  v. 
Shazv,  supra,  and  in  an  action  against  the  indorsers,  the  court 
say :  "Notices  were  addressed  to  them  at  their  former  place  of 
business,  where  their  affairs  were  being  settled  by  a  trustee  to 
whom  they  had  made  an  assignment  for  the  benefit  of  their 
creditors,  and  we  have  no  doubt  that  the  notices  were  received 
by  the  latter.    Notices  so  sent  and  mailed  are  sufficient." 

It  is  unnecessary  to  extend  the  discussion  of  this  question. 
It  is  sufficient  to  say  that,  in  view  of  all  these  authorities,  we  have 
no  hesitation  in  holding  that  the  corporation  is  liable  as  indorser 
on  all  this  paper,  where  notices  of  protest  were  addressed  to  it 
in  its  corporate  name. 

But  it  is  insisted,  however,  that  at  least  the  corporation  is  not 
liable  on  the  two  notes  the  notices  of  the  protest  of  which  were 


424  Notice  to  Bankrupt 

addressed  by  the  notary  to  "G.  W.  Stainback,  assignee  of  the 
Junk  Bros.  Lumber  &  Manufacturing  Company."  Whether 
notice  of  protest  to  the  trustee  of  a  bankrupt's  estate,  or  to  the 
assignee  of  an  insolvent  assignor  making  a  general  assignment,  is 
sufficient,  has  been  the  subject  of  uncertainty  of  opinion  with 
some  of  the  text  writers,  and  of  conflict  among  others. 

Air.  Byles,  in  his  work  on  Bills  (Wood's  Ed.),  p.  294,  says: 
"If  the  drawer  of  a  bill  become  bankrupt,  notice  must,  neverthe- 
less, be  given  to  him,  whether  a  trustee  be  appointed  or  not."  A 
number  of  English  cases  are  cited  by  the  author  in  his  note  to 
this  text,  some  of  which  support  it,  and  others  do  not. 

Parsons  says:  "If  a  person  entitled  to  notice  be  bankrupt, 
notice  should  be  given  to  him,  if  the  assignees  are  not  yet 
appointed ;  if  they  are,  notice,  perhaps,  should  be  given  to  them," 
etc.     (1  Parsons  on  Notes  and  Bills,  500). 

Judge  Story  says :  "If  the  party  entitled  to  notice  be  a  bank- 
rupt, and  assignees  have  been  appointed,  and  the  holder  knows  it, 
notice  should  be  given  to  them."     (Story  on  Prom.  Notes,  Sec. 

307)- 

Mr.  Daniel  says:     "If  the  party  be  a  bankrupt,  it  is  best  to 

give  notice  to  him  and  to  his  assignee  also."    If,  however,  "given 

to  the  assignee  alone,  it  would  probably  be  sufficient."     (2  Daniel, 

§  1002). 

On  the  other  hand,  Mr.  Chitty  says :  "If  the  party  entitled 
to  notice  be  a  bankrupt,  notice  should  be  given  to  him  before  the 
choice  of  assignees,  and  after  such  choice,  to  them."  (Chitty  on 
Bills,  p.  228). 

The  author  of  the  article  on  Bills  and  Notes  (Mr.  Charles 
Merrill  Hough,  of  the  New  York  bar)  in  2  Am.  &  Eng.  Enc.  of 
Law,  p.  412,  says:  "Upon  the  bankruptcy  of  an  indorser,  and 
before  the  appointment  of  an  assignee,  the  bankrupt  himself  is 
the  proper  person  to  notify,  but  the  assignee,  when  appointed, 
should  receive  all  notices  of  dishonor." 

Mr.  Tiedcman  says:  "If  the  drawer  or  indorser  be  bank- 
rupt, notice  should  be  given  to  the  assignee,  if  there  be  one,  par- 
ticularly if  the  party  has  absconded." 

In  one  of  the  latest,  and,  perhaps  the  most  elaborate,  of  the 
treatises  on  the  subject  of  commercial  paper — that  of  Mr.  Ran- 
dolph— the  author  says :  "After  the  drawer  or  indorser  of  a  bill 
has  become  bankrupt,  notice  of  its  dishonor  must  be  given  to  him 
or  to  his  assignee  ;  *  *  *  if  an  assignee  has  been  appointed, 
and  his  appointment  is  known,  the  notice  should  be  given  to  him." 
(3  Randolph.  Sec.  1243). 


Am-erican  National  Bank  v.  Junk  Bk<>^.  425 

Mr.  Wade,  in  his  work  on  "Notice,"  says:  "When  the  indor- 
ser  or  drawer  becomes  bankrupt  subsequent  to  drawing  or  indors- 
ing the  bill  or  note,  the  notice  should  be  given  to  the  assignee, 
when  one  has  been  selected  prior  to  the  dishonor  of  the  instru- 
ment." 

This  question  seems  to  have  been  considered  and  determined 
in  only  three  of  the  American  courts.  The  Supreme  Court  of 
Kentucky,  in  Callahan  v.  Bank,  supra,  in  the  case  of  a  voluntary 
general  assignment  for  the  benefit  of  creditors,  after  a  full  and 
careful  consideration  of  the  authorities,  announced  as  the  law  of 
that  state,  that  notice  to  the  assignee,  in  such  an  assignment, 
would  bind  the  indorser  and  his  estate,  and  this  upon  the  ground 
that,  by  this  act  of  the  assignor,  he  was,  under  the  assignor,  in 
a  qualified  sense  at  least,  the  general  representative  of  his  indebt- 
edness. 

On  the  other  hand,  the  Supreme  Court  of  Ohio,  in  House  v. 
Vinton,  43  Ohio  St.  R.,  346,  by  a  majority  opinion,  declined  to 
recognize  the  authority  of  this  case,  making  a  distinction  between 
an  assignee  under  a  voluntary  general  assignment  and  an 
assignee  in  bankruptcy.  In  this  latter  case,  however,  there  is  a 
strong  dissenting  opinion  dv  two  of  the  judges  of  that  court,  in 
which  the  soundness  of  the  rule,  as  announced  by  the  Kentucky 
court,  is  earnestly  insisted  upon. 

The  case  of  Casco  National  Bank  v.  Shaw,  79  Maine,  376, 
is  in  harmony  with  the  rule  in  Callahan  v.  Bank,  supra,  although 
the  latter  case  is  not  mentioned  in  the  opinion  of  the  court. 

This  question  has  been  heretofore  undetermined  in  this 
state,  and  we  are  at  liberty,  therefore,  to  establish  that  rule  which 
is  most  in  accord  with  what  we  conceive  to  be  the  weight  of 
authority  and  reason.  We  are  satisfied,  therefore,  to  hold  the  law 
to  be  that,  whenever  a  general  assignment  is  made,  as  contem- 
plated by  our  law,  that  the  assignee  in  such  assignment  so  far 
stands  in  the  shoes  of  his  assignor  that  notice  to  such  assignee  of 
the  noivpayment  of  indorsed  paper  will  bind  such  indorser. 


The  judgment  of  the  court  below  is  affirmed. 


-V 


&-- 


426  Notice  by  Telegraph 

notice  by  telegraph.  §§  98,  iio-3. 

Fielding  v.  Corry  ct  al.  (1897),  1  Q.  B.  D.  (1898),  268. 

Appeal  from  the  judgment  of  Ridley,  J.  at  the  trial  of  the 
cause  with  a  jury. 

The  action  was  by  the  plaintiffs  as  holders  of  a  bill  of 
exchange  against  several  defendants,  and,  among  others,  against 
Mrs.  Edwards,  who  was  an  indorser  of  the  bill.  The  bill  was  put 
into  the  hands  of  the  Cardiff  branch  of  the  County  of  Glouchester 
Bank  for  collection,  and  forwarded  by  that  branch  to  the  London 
and  Westminister  Bank  in  London,  who  presented  it  on  Saturday, 
November  10,  1894.  The  bill  was  dishonoured ;  and  on  Monday, 
November  12,  the  London  and  Westminster  Bank  sent  by  post 
a  notice  of  dishonour  directed  to  the  Cirencester  branch  of  the 
County  of  Gloucester  Bank.  On  the  following  day  they  discov- 
ered the  mistake,  and  telegraphed  notice  of  dishonour  to  the  Car- 
diff branch.  There  was  no  evidence  as  to  the  written  notice  of 
dishonour  having  reached  the  Cardiff  Bank,  but  on  the  Wednes- 
day, which  was  the  day  on  which  notice  of  dishonour  should,  in 
due  course,  have  been  given  by  that  branch,  this  was  done.  The 
subsequent  notices  were  given  in  time.  Ultimately  the  defendant, 
Mrs.  Edwards,  received  notice  at  the  time  at  which  she  would 
have  received  it  had  all  the  notices  been  given  in  order  and  in  due 
time.  The  defence  to  the  action  was  that  notice  was  not  sent  to 
the  Cardiff  branch  in  time,  and  that  the  defendant  was  therefore 
discharged.    Judgment  was  entered  for  the  plaintiffs. 

The  defendant,  Mrs.  Edwards,  appealed. 

Woodtin,  for  the  defendant. 

Ashton  Cross  and  Edmondson,  for  the  plaintiffs. 

A.  L.  Smith,  L.J.  The  question  of  law  raised  in  this  case 
is  whether  notice  of  dishonour  of  a  bill  of  exchange  was  given  in 
time.  It  appears  that  the  plaintiffs  had  a  bill  of  exchange,  which 
they  handed  to  the  Cardiff  branch  of  the  County  of  Glouchester 
Bank,  which  is  a  banking  company  having  branches  at  different 
places.  The  Cardiff  branch  sent  the  bill  to  their  London  agents, 
the  London  and  Westminster  Bank,  by  whom  it  was  presented 
for  payment  in  London  on  Saturday,  November  10.  1894,  and  it 
came  back  into  their  hands  in  the  afternoon,  so  that  they  had  until 
Monday,  November  12,  to  give  notice  of  dishonour,  and  on  that 
day  they  sent  notice.  By  mistake  this  notice  was  sent  to  the  Ciren- 


Fielding  v.  Corky  et  al.  427 

cester  branch  of  the  County  of  Gloucester  Bank,  and  not  to  the 
Cardiff  branch.  On  the  morning  of  Tuesday,  November  13,  the 
London  bankers  had  discovered  the  mistake,  and  they  telegraphed 
to  the  Cardiff  branch,  giving  them  notice  that  the  bill  was  dishon- 
oured. What  happened  after  this  was  that  due  notice  was  given 
in  succession  by  the  Cardiff  branch,  and  then  all  the  way  down 
the  line  of  indorsers  till  the  defendant,  who  now  appeals,  was 
reached,  though  she  got  notice  of  dishonour  in  due  time.  The 
question  raised  is  whether  there  was  a  blot  in  the  proceedings  by 
reason  of  notice  not  having  been  given  on  Monday  the  12th  to 
the  Cardiff  branch ;  the  notice  having,  as  I  have  said,  been  mis- 
directed to  the  Cirencester  branch.  To  ascertain  this  we  must 
refer  to  the  Bills  of  Exchange  Act,  1882,  s.  49.  By  sub-s.  5  the 
notice  may  be  given  in  writing  or  by  personal  communication, 
and  in  any  terms  which  sufficiently  identify  the  bill  and  intimate 
that  it  has  been  dishonoured  by  non-acceptance  or  non-payment, 
and  I  refer  to  this  for  the  purpose  of  shewing  that  there  is  no 
magic  about  a  notice  of  dishonour,  but  that  it  may  be  sent  by 
post  or  in  any  other  way.  Then,  by  sub-s.  12,  the  notice  may  be 
given  as  soon  as  the  bill  is  dishonoured,  and  must  be  given  within 
a  reasonable  time  thereafter.  It  is  further  provided  that  in  the 
absence  of  special  circumstances — and  I  think  there  were  no 
special  circumstances  proved  in  this  case — notice  is  not  to  have 
been  deemed  to  have  been  given  within  a  reasonable  time  unless, 
"where  the  person  giving  and  the  person  to  receive  notice  reside 
in  different  places,  the  notice  is  sent  off  on  the  day  after  the  dis- 
honour of  the  bill,  if  there  be  a  post  at  a  convenient  hour  on  that 
day;  and  if  there  be  no  such  post  on  that  day,  then  by  the  next 
post  thereafter."  Speaking  for  myself,  I  think  that  the  notice 
would  be  good  if  on  the  day  after  the  dishonour  of  a  bill  the 
person  giving  the  notice  were  to  telegraph  to  the  person  to 
receive  the  notice  in  terms  which  sufficiently  identified  the  bill  and 
intimated  that  it  had  been  dishonoured.  It  appears  that  the  Lon- 
don and  Westminster  Bank  gave  what  would  be  a  proper  notice 
of  dishonour  to  the  County  of  Gloucester  Bank,  though  by  mis- 
take the  notice  was  addressed  to  the  wrong  branch  of  that  bank. 
It  seems  to  me  that  we  would  be  frittering  away  the  provisions 
of  thestatute  if  we  were  to  hold  that  a  mistake  in  an  address  cou1d_ 
not :be~rectihed,  it  the  effect  of  the  rectification  is  that  the  person 
to  whom  notice  is  sent  in  point  of  fact  gets  notice  in  due  course 
ancl  in  due  time,  it  is  said  that  the  sending  of  the  notice  and  the- 
sending  of  the  telegram  were  disjunctive  acts,  and  that,  the 
notice  of  Monday  being  sent  to  the  wrong  place  and  the  telegram 


428  Notice  by  Telegraph 

of  Tuesday  being  too  late,  no  proper  notice  has  been  proved.  I 
cannot  bring  myself  to  disconnect  these  two  acts,  and,  although 
the  written  notice  of  Monday  is  not  shewn  to  have  been  properly 
directed,  I  think  the  mistake  was  rectified  in  due  time  by  the  tel- 
egram of  the  next  day.  I  think,  therefore,  that  the  appeal  should 
be  dismissed. 

i  Rigby,  LJ.    I  am  of  the  same  opinion.  A  notice  of  dishonour 

is  not  required  to  be  in  any  particular  form — it  may  be  by  writ-" 
ing  or  by  personal  communication,  and  maybe  in  any  terms  pro- 
vided it  gives  the  necessary  information^  it  was  plainly  intended 
to  give  the  widest  discretion  as  to  the  form  of  the  notice.  If  there 
were  anything  in  the  act  which  declared  that  the  address  of  the 
person  who  is  to  receive  the  notice  is  material,  different  considera- 
tions would  arise.  For  my  part,  I  think  it  is  not  material  that  the 
notice  has  been  wrongly  addressed,  provided  that  this  has  not  preT 
vented  it  getting  to  the  proper  person  within  thlTproper  time. 

With  regard  to  the  facts  of  this  case,  i  agree  that  there  are 
no  special  circumstances  to  be  considered.  The  notice  has  been 
sent  to  the  County  of  Gloucester  Bank  at  one  of  their  many 
addresses,  and  received  there  and  acted  upon  without  objection, 
and  the  question  is  whether  it  was  sent  to  them  in  time.  With 
regard  to  the  giving  of  notice,  agents  are  treated  successively  as 
if  they  were  holders.  Can  it  be  said  that  if  the  County  of  Glou- 
cester had  themselves  been  indorsers  they  would  not  have  been 
liable  had  the  notice  come  in  an  irregular  maner  into  their  hands 
but  in  proper  time?  If  this  cannot  be  said,  I  do  not  think  the 
notice  should  be  held  to  be  ineffectual  in  a  case  in  which  the  bank 
are  not  parties  to  the  bill.  In  fact,  the  Cardiff  branch  knew  of 
the  dishonour  of  the  bill  on  Tuesday,  November  13,  in  time  to 
give  notice  on  the  proper  date — the  14th.  To  hold  that  notice 
directed  to  the  right  person  but  sent  to  a  wrong  address  must  nec- 
essarily be  invalid  would  be  to  go  to  an  extreme  length,  and  make 
it  appear  that  a  right  address  is  an  essential  part  of  the  notice. 
There  may  be  no  address,  or  the  address  would  not  be  material 
if  a  person  carrying  the  notice  with  a  wrong  address  met  the 
person  to  whom  it  was  directed  and  delivered  it  to  him. 
vAxo»vaA>-A  I  think  the  notice  was  sufficient  whether  the  Cardiff"  branch 

ct^sc^-  is  treated  as  separate  from  and  independent  of  the  Cirencester 
branch  or  not.  The  latter  bank  received  due  notice  on  the  13th, 
and  the  Cardiff  branch  knew  of  the  dishonour  of  the  bill  and  of 
the  notice  on  the  same  day,  and  by  reason  of  the  action  of  the 
Cirencester  branch  were  enabled  to  do  exactly  what  was  neces- 
sary.    Notice  of  dishonor  reached  the  defendant  at  the  proper 


Fielding  v.  Corry  et  al.  429 

time,  and  what  was  done  was  precisely  what  is  required  by  the 
statute.  Under  these  circumstances  it  seems  to  me  impossible  to 
say  that  there  was  a  failure  in  one  of  the  links  of  the  chain  of 
notices ;  and  if  so  it  follows  that  the  plaintiffs  are  entitled  to  retain 
the  judgment  in  their  favour.  \<^Vsrv  ~$LJ*~yr~ 

Collins,  LJ.    I  have  the  misfortune  to  differ  from  the  other 
members  of  the  court  on  a  point  in  this  case  which  is  of  import-  ^^ 
ance,  and  the  conclusion  I  have  come  to  is  that  the  appeal  should 
be  allowed. 

In  the  case  of  a  bill  of  exchange  any  one  who  is  entitled  to 
notice  of  dishonor  may  rely  on  a  prior  breach  by  any  one  of  the 
persons  required  to  give  notice.  This  is  established  by  the  cases, 
and  was  not  disputed  in  the  argument.  Another  general  observa- 
tion is  that  the  requirements  as  to  notice  of  dishonour  are  arbi- 
trary  and  highly  technical,  but  they  have  long  been  settled  by 
authority,  and  are  now  crystallized  Into  statutory  rules.  It  was 
long  ago  held  that  knowledge  is  not  equivalent  to  receipt  of 
notice:  see  Caunt  v.  Thompson,  1849,  7  C.  B.  400.  It  would 
unsettle  the  practice  of  merchants  if  these  rules  were  not  strictly 
observed. 

The  point  on  which  I  differ  is  the  question  whether  different 
branches  of  a  bank  are  to  be  treated  as  one  and  the  same  person 
for  the  purpose  of  giving  and  receiving  notice  of  dishonour.  I 
think  the  judgments  that  have  been  given  involve  the  proposition 
that  they  may  be  treated  as  one.  I  am  clearly  of  opinion  that  they 
cannot.  The  point  was  decided  in  Clode  v.  Bayley,  12  M.  &  W. 
51 ;  13  L.  J.  (Ex.)  17,  more  than  fifty  years  ago,  in  which  case 
it  was  treated  as  resting  on  long-established  practice.  In  Prince 
v.  Oriental  Bank  Corporation,  (1878)  3  App.  Cas.  325.  Sir 
Montague  Smith  in  delivering  the  judgment  of  the  Privy  Council 
refers  with  approval  to  Clode  v.  Bayley.  He  says,  speaking  of 
that  case:  "It  was  held  that  for  the  purpose  of  estimating  the 
time  at  which  notice  of  dishonour  should  be  given,  the  different 
branches  were  for  that  purpose  to  be  regarded  as  distinct.  In 
considering  whether  notice  of  dishonour  was  given  in  time,  it  was 
thought  reasonable  that  the  bill  should  be  sent  successively  to  the 
branch  banks  through  which  it  had  come  to  the  principal  bank, 
before  giving  the  notice.  It  was  pointed  out  by  Lord  Abinger 
that  it  was  not  possible  for  the  bank  in  London  to  know  from 
whom  the  bill  came ;  therefore  it  was  necessary,  in  the  ordinary 
course  of  the  transaction  of  business,  that  it  should  be  sent  to  the 
branches  before  notice  of  dishonour  could  properly  be  given." 
In  Clode  v.  Bayley,  there  was  an  indorsement  of  the  bill  to 


430  Notice  by  Telegraph 

one  of  the  branch  banks;  but  that  fact  does  not  affect  the 
principle  upon  which  the  decision  is  based,  and,  indeed,  as  between 
two  of  the  branches,  there  was  no  indorsement.  In  the  course 
of  the  argument  in  that  case  it  was  said:  "The  only  question 
is,  whether,  this  bank  having  two  subordinate  branches,  each 
of  the  three  establishments  is  to  be  considered  as  a  separate 
holder,  and  entitled  to  notice  of  dishonour,  or  whether  it  is  not 
to  be  considered  as  one  and  the  same  establishment."  That  seems 
to  me  to  be  the  point  before  us,  and  the  submission  that  the  bank 
and  its  branches  were  to  be  considered  as  one  establishment  was 
unsuccessful.  In  Bray  v.  Hadwen,  (1816)  5  M.  &  S.  68,  the 
banker  was  held  to  be  entitled  to  one  whole  day  for  the  purpose 
of  giving  notice,  as  in  the  case  of  an  ordinary  person  into  whose 
hands  a  dishonoured  bill  comes. 

Under  s.  49,  sub-s.  8,  of  the  Bills  of  Exchange  Act,  1882, 
"where  notice  of  dishonour  is  required  to  be  given  to  any  person, 
it  may  be  given  either  to  the  party  himself,  or  to  his  agent  in  that 
behalf."  In  this  case  the  London  and  Westminster  Bank  was 
agent  to  present  the  bill,  and  had  no  other  principal  for  the  pur- 
pose of  giving  notice  of  dishonour  but  the  Cardiff  branch  from 
which  the  bill  was  received ;  but  they  sent  notice  to  a  branch  to 
which  they  were  not  responsible.  Such  a  notice,  in  my  opinion, 
is  ineffective,  and  must  be  put  out  of  consideration.  If  it  were 
not  so.  it  would  follow  that  notice  to  one  branch  of  a  bank  would 
be  notice  to  all  branches,  and  this  even  though  a  branch  might 
be  in  a  remote  part  of  the  kingdom,  or,  for  anything  I  know, 
out  of  the  kingdom. 

It  has  been  contended  that  the  London  and  Westminster 
Bank  sent  notice  on  the  12th,  because  on  that  day  they  posted 
one  to  the  County  of  Gloucester  Bank  at  their  Cirencester  branch ; 
but  on  the  authorities  I  have  cited  this  was  not  notice  to  the  Car- 
diff branch.  It  is  said  to  have  been  a  notice  sent  to  the  right 
person  at  a  wrong  address.  That,  in  my  judgment,  would  not 
make  it  a  better  notice  than  if  it  had  been  sent  to  the  wrong 
person.  In  fact,  it  was  not  sent  to  the  right  person ;  it  was  sent 
to  the  Cirencester  branch,  which,  for  this  purpose,  was  the  wrong 
person,  and  there  is  no  evidence  that  it  ever  reached  the  Cardiff 
branch.  This  notice,  therefore,  may  be  wiped  out  of  the  discus- 
sion. It  has  been  sought  to  eke  out  this  defective  notice  by  means 
of  the  telegram  which  was  sent  to  the  Cardiff  branch  on  the  fol- 
lowing day;  but,  within  the  terms  of  the  section,  that  telegram 
was  clearly  not  in  itself  a  good  notice;  and  to  this  my  learned 
brothers  agree.    How  does  it  become  any  better  from  the  fact 


Bartlett  et  al.  v.  Robinson  431 

that  an  abortive  attempt  to  send  a  good  notice  had  been  made  the 
day  before?  The  defendant  Mrs.  Edwards  did,  in  point  of  fact, 
receive  notice  as  soon  as  she  would  have  done  if  there  had  been 
no  break  in  the  chain ;  but  the  cases  have  decided  that  she  is 
nevertheless  entitled  to  take  advantage  of  the  break.  I  think, 
therefore,  that  the  appeal  should  be  allowed.  ^^  oV^ 

Appeal  dismissed. 

WHERE  NOTICE  MUST  BE  SENT.  §  IIC 

Bartlett  et  al.  v.  Robinson  (1868),  39  N.  Y.  187. 

This  action  is  brought  against  the  defendant  herein  as 
indorser  of  a  promissory  note,  dated  New  York,  July  18,  i860, 
made  by  J.  Bryant  Smith,  which  the  defendant  indorsed  in  the 
following  form,  viz.:  "Chas.  Robinson,  214  E.  18th  street."  At 
the  time  he  so  indorsed  the  note  he  resided  at  the  place  so  desig- 
nated, and  continued  to  reside  there  to  the  time  of  the  trial  of 
the  action. 

The  note  was  duly  presented  for  payment,  in  the  city  of  New 
York  where  it  was  payable,  and  was  protested,  and  on  the  next 
day  the  notary  deposited  in  the  postoffice  in  the  city  of  New 
York  a  notice  of  such  protest,  addressed  "Chas.  Robinson,  Esq., 
City  of  New  York,"  and  paid  the  postage  thereon. 

The  notice  did  not  reach  the  defendant,  and  he  did  not 
receive  any  notice  of  such  protest. 

There  were  at  least  two  other  persons  of  the  name  of  Charles 
Robinson  residing  in  the  city  of  New  York  at  the  time  of  the 
making  and  at  the  time  of  the  protest  of  the  said  note. 

By  a  statute  of  the  State  of  New  York,  passed  in  1857, 
(Laws  of  1857.  ch.  416)  it  is  provided  that  "whenever  the  resi- 
dence or  place  of  business  of  the  indorser  of  a  promissory  note 

*  *  *  shall  be  in  the  city  or  town,  or  wherever  the  city  or 
town  indicated  under  the  indorsement  or  signature  of  such 
indorser  as  his  or  her  place  of  residence  *  *  *  shall  be  the 
same  city  or  town  where  such  promissory  note  *  *  *  is  pay- 
able, or  is  legally  presented  for  payment  *  *  *  all  notices  of 
non-payment  *  *  *  of  such  promissory  note  *  *  *  may 
be  served  by  depositing  them,  with  the  postage  thereon  prepaid 
in  the  postoffice  of  the  city  or  town  where  such  promissory  note 

*  *  *  was  payable,  or  legally  presented  for  payment  *  *  * 
directed  to  the  indorser     *     *     *     at  such  city  or  town. 

On  a  trial  of  the  action  before  a  referee  the  service  of  notice 


432  Where  Notice  Must  be  Sent 

upon  the  indorser  was  held  insufficient,  and  judgment  was  ren- 
dered for  the  defendant.  The  judgment  was  affirmed  in  the 
Supreme  Court  in  General  Term  in  the  first  district.  The  plain- 
tiff appealed  to  this  court. 

Thomas  Stevenson,  for  the  appellant. 
Wm.  W.  Niles,  for  the  respondent. 

Woodruff,  J. — The  condition  of  the  liability  of  the  indorser 
of  a  promissory  note  is,  that  if,  upon  due  demand,  the  note  is  not 
paid  by  the  maker,  the  holder  shall  give  him  notice  thereof,  in 
order  that  he  may  take  measures  for  his  own  security  or  protec- 
tion. 

The  use  of  due  diligence,  by  the  holder,  to  bring  such  notice 
home  to  the  indorser,  stands  by  law,  in  the  place  of  actual  notice, 
even  though  it  be  ineffectual,  and  fails  to  bring  home-knowledge 
to  the  indorser. 

In  all  cases,  then,  in  which  the  indorser  fails  to  receive  notice 
(he  having  done  nothing  to  waive  or  dispense  with  it),  the  ques- 
tion of  liability  becomes  one  of  diligence.  Has  the  holder  used 
reasonable  diligence  to  give  the  indorser  notice? 

That  is  a  question  partly  of  fact  and  partly  of  law,  and  must 
be  determined  according  to  the  circumstances  of  each  case. 

What  will  constitute  reasonable  diligence,  in  every  suppos- 
able  set  of  circumstances,  cannot  be  decided  by  any  unvarying 
rule.  Certain  efforts,  when  proved  to  have  been  made,  have  been 
passed  upon  by  the  courts,  and,  prior  even  to  adjudication,  been 
so  accepted  by  mercantile  usage  and  acquiescence,  that  they  may 
be  stated  as  rules  for  the  guidance  of  all  holders  of  bills,  and  the 
instruction  of  all  indorsers,  and,  it  will  be  seen,  that  they  adapt 
themselves  to  the  changes  in  the  condition  of  things,  and  to  the 
conveniences  and  necessities  of  business. 

Thus,  in  the  early  history  of  the  subject,  it  was  necessary  to 
carry  the  notice,  or  send  it  by  some  messenger,  so  as  to  be  able 
to  prove  its  delivery.  When  communication  was  established  by 
regular  post,  under  such  governmental  or  official  responsibility, 
that  a  presumption  of  safe  carriage  was  warranted,  and  the  usages 
of  business  men  to  take  their  correspondence  from  such  officials, 
in  due  course,  were  recognized,  then,  reasonable  diligence  was 
held  satisfied  by  the  immediate  dispatch  of  notice  by  the  post, 
properly  addressed,  to  the  indorser. 

So,  delivery  of  notice,  at  the  residence  or_usual  place  of  busi- 
ness, is  held  reasonable  diligence,  because  the  habits  of  business, 
and  of  life,  make  it  unreasonable  to  require  the  holder  to  pursue 
the  person  to  whatever  place  he  may,  at  the  time,  happen  to  be, 


Bartlett  et  al.  v.  Robinson  433 

and,  also,  because,  presumptively,  and  according  to  the  ordinary 
experience  of  men,  a  notice  so  left  will  come  to  his  hands. 

And  so,  also,  when  the  residence  is  unknown,  then  diligence, 
in  the  endeavor  to  find  the  person,  or  to  learn  his  residence,  or 
place  of  business,  is  deemed  all  that  it  is  reasonable  to  require, 
and  that  will  stand  in  the  place  of  notice. 

Every  relaxation  of  the  rule,  that  actual  notice  shall  be  given, 
is  founded  on  the  idea,  that  reasonable  convenience  in  respect 
to  the  mode  of  giving  the  notice,  and  reasonable  diligence  in  the 
endeavor  to  bring  it  home  to  the  indorser,  should  stand  instead 
thereof,  or  be  deemed  equivalent  to  actual  notice ;  and,  therefore, 
it  shall  avail  to  the  holder  whether  it  is  effective  in  bringing  notice 
home  to  the  indorser  or  not. 

But,  immediately  out  of  this  relaxation  grows  another  cor- 
relative right  of  the  indorser  to  prescribe  the  place  to  which  such 
notice  may  be  sent,  when  he  makes  his  indorsement.  He  enters 
into  the  contract,  presumptively,  with  knowledge  that  he  may 
receive  personal  notice,  or  that  the  notice  may  be  sent  to  his 
residence  or  place  of  business.  He  knows  what  contingencies 
may  happen  under  which  notices,  so  left,  may  fail  to  reach  him 
in  due  season.  He  may  know  of  arrangements  of  his  own,  which 
make  it  important  that,  in  order  to  reach  him  in  due  season,  the 
notice  should  be  forwarded  or  delivered  at  a  particular  place. 

Now,  it  is  settled  that,  if  he  designate  such  place,  the  holder 
may  give  notice  at  that  place!  This  is  so  settled,  because  it  is 
reasonable  diligence  on  the  part  of  the  holder  to  deliver  the 
notice  at  the  place  where  the  indorser  has  appointed  to  receive 
it,  and  because,  to  hold  that  such  notice  is  not  sufficient,  is  to 
permit  the  indorser  to  mislead  the  holder,  and  practically  to 
defraud  him. 

The  designation  of  the  place  by  underwriting,  at  the  time  of 
his  indorsement,  is,  theretore,  an  invitation  to  the  holder  to  deliver 
a  notice  addressed  to  him  as  indorser  at  that  place,  and  concludes 
him  so  that  he  may  not  deny  that,  for  all  the  purposes  and  condi- 
tions of  the  indorsement,  that  shall  be  deemed  his  residence  or 
place  of  business.  ~~ 

If  he  has  actually  removed,  and  that  fact  is  known  to  the 
holder,  another  question  would  arise,  but  in  the  first  instance  it  is 
clear  that  a  notice  at  that  place  should  be  deemed  sufficient  to 
bind  him. 

Why  then  should  not  the  obligation  of  the  holder,  who 
accepts  an  indorsement  with  such  a  designation,  and  the  obliga- 
tion of  the  indorser,  who  makes  the  designation,  be  reciprocal? 


434 


Where  Notice  Must  be  Sent 


1  think  they  are,  and  that  such  designation  should  be  deemed 
a  qualification  of  the  indorsement,  and  import  that  notice  shall  be 
personal  or  by  delivery  at  the  place  designated. 

If  this  be  so,  then  the  decision  of  this  case  does  not  depend 
upon  the  particular  construction  of  our  statute  of  1855,  but  upon 
a  broader  inquiry.  Thus,  before  our  statute,  if  the  indorser 
resided  in  the  same  town  or  city  with  the  party  seeking  to  charge 
him,  the  notice  must  be  given  by  actual  delivery  to  him  or  at  his 
residence  or  place  of  business;  and  a  delivery,  if  not  personal, 
would  be  sufficient  at  the  place  designated,  and  in  my  opinion 
must,  in  order  to  charge  him,  be  delivered  there. 

If  they  did  not  reside  in  the  same  town  or  city,  then  a  notice 
sent  by  mail — and,  in  order  to  that,  deposited  in  the  postoffice — 
addressed  to  him  at  the  city  or  town  in  which  he  resides  was  suffi- 
cient; and,  if  there  be  more  than  one  postoffice  in  the  same  town- 
ship, then  addressed  to  the  postoffice  at  which  the  indorser  usually 
receives  his  letters. 

Now  our  statute  has  substituted  a  deposit  of  the  notice  in 
the  postoffice,  in  the  same  city  or  town  in  which  presentment 
for  payment  is  made,  "directed  to  the  indorser  at  such  city  or 
town"  for  the  actual  carriage  or  sending  the  notice  by  a  mes- 
senger to  the  residence,  in  certain  cases  and  among  them,  "when- 
ever the  residence  or  place  of  business  of  such  indorser  shall  be  in 
such  city  or  town." 

I  apprehend  that  all  that  was  intended  by  this  statute  (in  its 
bearing  upon  this  case)  is,  that,  in  view  of  the  perfection  of  our 
postal  system  and  the  general  certainty  that  men  of  business  will 
receive  letters  directed  to  them  coming  into  our  postoffices,  such 
deposit  of  notice  shall  be  accounted  reasonable  and  sufficient  dili- 
gence to  notify  an  indorser  as  well  when  he  resides  in  the  same 
town  as  when  he  resides  in  another ;  and  that  the  statute  has  no 
bearing  whatever  upon  the  right  of  the  indorsertq  designate  the 
place  to  which  the  notice  shall  be  addressed,  the  right  of  the 
holder  to  act  in  pursuance  of  that  designation,  the  binding  effect 
of  such  a  designation  on  the  indorser,  or  the  obligation  of  the 
holder  who  accepts  an  indorsement  so  qualified. 

And,  therefore,  as  well  when  the  parties  do  not  reside  in  the 
same  city  or  town  as  when  (according  to  our  statute)  they  do, 
or  in  short  whenever  notice  is  sent  by  mail  or  deposited  in  the 
postoffice.  tile  "notice  must  be  directed  tothe  indorser,  not  only 
at  thecity  or  towrt,  btftTo'lhe  specific  place  designated  by  the 
mider  writing. 

Tn  our  cities  and  large  towns,  where  there  are  often  many 


Van  Brunt  &  Sons  v.  Vaughn  435 

persons  of  the  same  name,  such  underwriting  is  very  important 
as  a  descriptive  designation  of  the  indorser,  and  not  only  appoints 
the  place  where  the  indorser  desires  to  have  the  notice  come,  but 
tends  to  identify  the  person  who  is  entitled  to  the  benefit  of  the 
notice. 

I  think,  therefore,  that  a  compliance  with  what  is  said  to  be 
the  letter  of  the  statute,  by  writing  the  name  of  the  indorser  and 
the  name  of  the  city,  is  not  satisfying  the  requirement  that  rea- 
sonable diligence  should  be  used,  and  that  a  just  interpretation  of 
the  statute  requires  that  the  words  "directed  to  the  indorser  at 
such  city  or  town"  includes  as  a  part  of  such  "direction"  con- 
formity to  the  prescription  which  the  special  indorsement  imports. 

To  the  suggestion  that  the  holder  ought  not  to  be  compelled 
to  take  the  risk  of  the  handwriting  of  the  indorser,  and  that  if 
he  directs  the  notice  to  the  designated  place,  it  may  turn  out  that 
the  indorser  has  no  residence  or  place  of  business  there  and  did 
not  write  nor  authorize  such  designation,  it  will  suffice  to  say  that 
no  party  is  bound  to  accept  such  an  indorsement ;  he  acts  voluntar- 
ily in  accepting  the  note  or  bill  and  in  giving  faith  to  the  indorse- 
ment. If  he  takes  it  he  necessarily  assures  himself  (so  far  as  he 
deems  it  necessary  or  prudent)  of  the  genuineness  of  all  the 
signatures  on  which  he  relies,  and  yet  the  signature  of  a  supposed 
indorser  may  not  be  genuine ;  the  holder  is  at  that  risk.  So  in 
reference  to  the  authenticity  of  any  qualification  of  the  indorse- 
ment. He  acts  voluntarily  and  may  rely  upon  it  or  not  at  his 
election,  and  ought  to  be  bound  by  it. 

think  the  judgment  should  be  affirmed. 
Mason,  J.,  dissenting.  JPc^,     &£xJL 


NOTICES    TO    ONE    INDORSER    FOR    DISTRIBUTION    AND    DELIVERY    TO 

CO-INDORSERS.  §  0,2. 

Van  Brunt  &  Sons  v.   Vaughn   {1877),  47  Ioiva,  145,  29  Am. 

Rep.  468. 

Appeal  from  Pottawattamie  District  Court. 

Action  against  the  indorser  of  commercial  paper.  There  was 
a  judgment  in  the  District  Court  for  plaintiffs;  defendant  appeals. 
The  facts  of  the  case  appear  in  the  opinion. 

John  H.  Keatley,  for  appellant. 
Smith  &  Carson,  for  appellees. 


436  Notices  to  Indorse-r  and  Co-Indorsers 

Beck,  J.  The  plaintiffs,  defendant,  and  two  others,  all  resi- 
dents of  Council  Bluffs,  were  indorsers  of  a  draft  which  was 
protested  for  non-payment  in  Little  Rock,  Arkansas,  where  the 
acceptor  resided,  or  was,  at  the  time,  doing  business.  Notices 
of  non-payment  to  all  the  indorsers  were  sent,  by  the  notary 
making  the  protest,  through  the  mail,  under  one  cover  addressed 
to  one  of  the  indorsers  at  Council  Bluffs.  This  indorser  gave  the 
notices  addressed  to  the  other  indorsers  to  plaintiff,  who  depos- 
ited the  notice  directed  to  defendant  in  the  postoffice  at  Council 
Bluffs,  properly  directed  to  him.  Notice  to  another  indorser,  who 
is  sued  with  defendant,  was  sent  in  the  same  way  and  was  received 
by  him.  It  is  not  shown  that  defendant,  who  alone  appeals, 
received  the  notice  sent  him.  It  is  now  insisted  by  defendant  that 
the  sending  of  the  notice  to  one  indorser  by  mail  and  the  deposit 
thereof,  properly  directed,  in  the  postoffice  by  such  indorser,  as 
above  stated,  is  not  sufficient  to  charge  the  defendant  as  an  indor- 
ser of  the  paper.  This  position  presents  the  only  question  in  the 
case. 

The  notary  was  authorized  to  transmit  the  notices  to  the 
indorsers  by  mail,  and  if  they  were  so  directed  and  sent  that, 
in  the  usual  course  of  the  mail,  defendant  would  have  received 
them,  it  is  sufficient.  The  notary  may  employ  proper  means  and 
instrumentalities  to  secure  the  deposit  of  the  notices  in  the  post- 
office.  So  he  can  use  proper  instrumentality,  if  any  be  necessary, 
to  secure  their  transmission  by  the  mail.  If  it  be  necessary  in 
thus  transmitting  them  to  re-deposit  them  in  the  postoffice  with 
new  directions,  so  that  they  may  reach  the  indorser  in  due  time 
and  by  due  course  of  the  mail,  this  may  be  done.  The  mail  is 
used  in  this  manner  as  the  medium  of  the  transmission  of  the 
notices,  and  the  instrumentalities  used  for  the  re-deposit  and 
re-direction  of  the  notices  are  but  means  necessary  to  secure  the 
transportation  of  the  notices  by  mail  from  the  notary  to  the 
indorser. 

The  transmission  of  notices  of  the  protest  of  commercial 
paper  through  a  party  thereto,  who  re-deposited  them  in  the 
postoffice  of  the  persons  to  whom  theywere  directed,  has  been 
held  sufficient  in  more  than  one  well  considered  case.  See 
Hartford  Bank  v.  Stcdman,  3  Conn.  489;  Eagle  Bank  v.  Hath- 
away, 5  Met.  212;  Manchester  Bank  v.  Fellows,  8  Foster,  302; 
Warren  v.  Oilman,  17  Me.  360.  But  a  different  rule  was  recog- 
nized in  Sheldon  v.  Benham,  4  Hill,  129.  The  weight  of  author- 
ity, as  well  as  reason,  seems  to  support  the  rule  we  adopt.  The 
judgment  of  the  District  Court  is  Affirmed. 


^ 


Simpson  v.  Turney  437 

time  within  which  notice  must  he  sent.    §§  io4-i06. 
Sussex  Bank  v.  Baldwin.     (See  page  560.) 


Simpson  v.  Turney  (1844),  24  Tcnn.   (5  Humph.)  419,  42  Am. 

Dec.  443. 
Gibbs,  for  Simpson. 
H.  M.  Burton,  for  Turney. 

Reese,  J.,  delivered  the  opinion  of  the  court. 

The  Branch  Bank  of  the  State  of  Tennessee  was  the  holder 
of  a  promissory  note,  payable  at  said  bank,  made  by  James  H. 
Jenkins,  to  Anthony  Dibrell,  and  endorsed  in  the  following  order : 
A.  Dibrell,  S.  Turney,  and  Jno.  W.  Simpson.  Turney's  residence 
is  within  one  mile  of  the  bank,  at  Sparta,  so  known  to  be  to  the 
bank,  and  to  all  the  other  parties  to  the  note.  The  note  was 
legally  due  on  the  1st  day  of  February,  1843,  that  being  the  third 
day  of  grace.  It  was  on  that  day  protested.  On  the  2d  day  of 
February  no  notice  of  the  protest  for  the  non-payment  of  the 
note  was  either  served  upon  Turney  personally  or  left  at  his 
residence.  He  had  notice  from  the  bank,  the  holder,  on  the  3d 
day  of  February.  John  W.  Simpson,  the  plaintiff,  the  immediate 
endorser  of  Turney,  gave  him  no  notice  whatever. 

These  facts  being  specially  found  by  the  jury  in  the  case,  the 
circuit  court  gave  judgment  for  Turney,  and  the  plaintiff  has 
appealed  in  error  to  this  court. 

It  is  not  insisted  for  the  plaintiff  here  that  the  notice  of  the 
bank  to  Turney,  the  only  notice  he  received,  was  in  time.  But 
it  is  urged  that,  if  Simpson  had  given  him  notice  on  the  day  he 
received  notice  from  the  bank,  such  notice  would  have  been  good ; 
and  that  is  certainly  so ;  and  the  plaintiff  further  insists  that  the 
notice  given  by  the  bank  shall  inure  to  his  benefit.  If  the  notice. 
had  been  in  time  and  valid,  it  would  by  law  have  inured  to  Ins 
Benefit,  he  being  an  intermediate  party.  But  a  notice  of  no  ben- 
efit to  the  bank,  because  not  fixing  the  liability  of  the  partv  noti- 
fied,  cannot  inure  to  the  benefit  ot  another.  So  to  hold  would  be 
to  introduce  a  new  principle  into  the  law  merchant.  Suppose 
there  were  ten  endorsers  upon  a  note ;  if  the  holder,  ten  days 
after  the  protest,  gave  notice  to  the  first  endorser,  this,  according 
to  the  argument,  would  fix  all  the  endorsers,  for  it  would  be  just 
the  time  necessary  to  them  to  have  given  notice  to  each  other 
successively. 


438  Seasonable  Notice 

It  is,  perhaps,  a  universal  principle,  where  substitution  exists 
at  all,  that  the  matter  or  thing  to  be  substituted  to  must  be  valid 
and  effective  in  behalf  of  the  principal ;  if  it  be  ineffectual  in  his 
behalf,  it  is  difficult  to  see  how  it  can  inure  to  the  benefit  of 
others. 

Upon  the  direct  question  raised  in  this  case,  Bailey  on  Bills 
expressly  says:  "Nor  is  it  any  excuse  that  there  are  several 
intervening  parties  between  him  who  gives  the  notice  and  the 
defendant  to  whom  it  is  given ;  and,  if  the  notice  had  been  com- 
municated through  those  intervening  parties,  and  each  had  taken 
the  time  the  law  allows,  the  defendant  would  not  have  had  the 
notice  the  sooner." 

The  same  principle  is  also  decided  in  the  case  of  Turner  v. 
Leech,  4  Barn,  and  Aid.  454. 

We  have  been  referred  by  the  plaintiff  to  what  has  been  said 
by  this  court  in  the  case  of  McNeil  v.  Wyatt,  3  Humph.  128.  The 
bank,  at  Lagrange,  in  that  case  gave  notice  to  one  Glover,  on  the 
14th,  to  be  served  on  Wyatt  &  McNeil.  Wyatt  was  served  on 
the  14th,  and  McNeil  on  the  15th.  But  Glover  proved  in  the  cir- 
cuit court  that  he  was  the  general  agent  of  Wyatt  to  serve  notices 
for  him  when  his  name  was  on  paper.  And  the  circuit  court  left 
it  to  the  jury  to  say  whether  Glover,  who  served  the  notice,  was 
not  Wyatt's  agent  as  well  as  the  agent  of  the  bank;  and,  if  he 
was,  then  the  notice  to  McNeil  on  the  15th,  one  day  after  Wyatt 
received  notice,  was  sufficient. 

This  court  held  that  there  was  not  any  error  in  this  part  of 
the  charge;  and  placing  the  validity  of  the  notice,  as  this  court 
did,  upon  that  special  ground,  is  a  distinct  recognition  of  the 
general  principle  maintained  by  us  in  this  case. 

Upon  the  whole,  we  affirm  the  judgment. 


SEASONABLE  NOTICE.  §  IO4. 

Smith  v.  Poillon  ct  al.  (1882),  87  N.  Y.  590,  41  Am.  Rep.  402. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  first  judicial  department,  entered  upon  an  order  made 
January  28,  1881,  which  affirmed  a  judgment  in  favor  of  plaintiff, 
entered  upon  a  verdict,  and  affirmed  an  order  denying  a  motion 
for  a  new  trial.     (Reported  below,  23  Hun,  528.) 


Smith  v.  Poillon  et  al.  439 

The  nature  of  the  action  and  the  material  facts  are  stated  in 
the  opinion. 

Albert  A.  Abbott,  for  appellants. 
James  McKcen,  for  respondent. 

Earl,  J.  This  action  was  brought  to  recover  of  the  defend- 
ants as  indorsers  upon  a  promissory  note,  made  in  the  city  of  New 
York  by  the  McNeal  Coal  and  Iron  Company,  February  28,  1870, 
payable  to  their  order  three  years  after  date,  at  the  office  of  the 
com  pan}'. 

It  was  alleged  in  the  complaint  that  the  company,  a  Pennsyl- 
vania corporation,  had  an  office  in  the  city  of  New  York  at  the 
date  of  the  note,  and  that  the  note  was  payable  at  such  office,  and 
these  allegations  were  expressly  admitted  in  the  answer. 

The  defendants  defended  the  action  upon  two  grounds : 
(1)  That  the  note  was  not  properly  presented  for  payment  and 
payment  demanded  ;  and  (2)  that  notice  of  protest  was  not  in  due 
time  served  upon  the  defendants.  The  trial  judge  held,  that  upon 
the  undisputed  evidence  it  appeared  that  notice  of  protest  was 
duly  served  in  proper  time  upon  the  defendants,  and  refused  to 
submit  the  evidence  in  relation  thereto  to  the  jury,  but  he  sub- 
mitted the  evidence  as  to  the  demand  of  payment  to  the  jury,  and 
they  found  in  reference  thereto  in  favor  of  plaintiff.  The  judg- 
ment entered  upon  the  verdict  of  the  jury  having  been  affirmed 
at  the  General  Term,  the  defendants  appealed  to  this  court. 

We  are  of  opinion  that  there  was  no  material  question  of  fact 
to  be  submitted  to  the  jury,  and  that  upon  the  undisputed  evi- 
dence the  plaintiff,  as  a  matter  of  law,  was  entitled  to  a  verdict. 
It  is  undisputed  that  the  note  on  the  last  day  of  grace  was  placed 
in  the  hands  of  Mr.  Baker,  a  notary,  for  demand  and  protest ; 
that  he  took  the  note  and  went  to  an  office,  11 1  Broadway,  New 
York,  in  the  Trinity  building,  where  the  company  either  then  had 
or  shortly  before  had  had  its  office,  and  that  he  there  presented 
the  note  and  demanded  payment  thereof  of  the  person  in  charge 
of  the  office,  and  that  there  was  then  a  sign  at  the  door  of  the 
office,  indicating  that  it  was  the  office  of  the  company. 

The  only  dispute  at  the  trial  was  whether  the  place  at  which 
the  demand  was  thus  made  was  at  the  time  the  office  of  the  com- 
pany, and  there  was  evidence  on  the  part  of  the  plaintiff  tending 
to  show  that  it  was.  The  evidence  on  the  part  of  the  defendant 
tended  to  show,  and.  if  undisputed,  did  show,  that  that  place  had 
been  the  office  of  the  company,  its  last  office  in  this  state,  but 
that  it  had  then  ceased  to  be  such  office.    If  it  was  then  the  office 


440  Seasonable  Notice 

of  the  company,  it  is  undisputed  that  presentment  and  demand 
there  was  properly  made ;  if  it  was  not  then  the  office  of  the  com- 
pany, it  was  the  last  office  of  the  company  within  this  state,  and 
the  company  being  a  foreign  corporation  had  removed  its  office 
and  left  the  state.  In  such  case  it  is  well  settled  that  no  pre- 
sentment and  demand  at  any  place  are  necessary,  in  order  to 
charge  the  indorser.  (Foster  v.  Julien,  24  N.  Y.  28).  It  matters 
not  that  the  plaintiff  alleged  due  presentment  and  demand  in  Ins 
complaint;  that  did  not  preclude  him  from  proof  upon  the  trial 
that  presentment  and  demand  had  been  waived  or  rendered  useless^, 
and  unnecessary.  So  it  lias  been  held  that  under  an  allegation  in 
a  complaint  of  a  tender  the  plaintiff  could,  upon  the  trial  prove 
that  a  tender  had  been  waived,  and  thus  rendered  unnecessary. 
(Holmes  v.  Holmes,  9  N.  Y.  525).  Therefore,  even  if  the  defend- 
ants were  right  in  their  contention  that  the  place  where  the 
demand  was  made  was  not  then  the  office  of  the  company,  the 
result,  upon  their  own  evidence,  so  far  as  that  branch  of  the  case 
was  concerned,  should  have  been  the  same. 

We  have  now  only  to  consider  whether  upon  the  undisputed 
evidence  the  defendants  were  in  due  time  notified  of  the  non- 
payment of  the  note.  This  suit  was  commenced  nearly  six  years 
after  the  note  fell  due,  and  the  evidence  therein  was  given  more 
than  seven  years  thereafter.  After  such  a  lapse  of  time  the  mem- 
ory of  witnesses  cannot  be  expected  to  be  full  and  minutely 
accurrate,  and  some  force  should  be  given  to  the  presumption  that 
official  duty  was  discharged.  The  last  day  of  grace  upon  this 
note  was  the  3d  of  March,  1873 ;  on  that  day  the  notary  presented 
the  note  for  payment  as  above-mentioned  and  protested  the  same 
for  non-payment.  On  the  following  morning  he  caused  notices 
of  protest  to  be  drawn  up,  one  to  the  defendants,  the  first  indor- 
sers,  one  to  Smith,  the  second  indorser,  and  another  to  O.  Robin- 
son, cashier,  the  last  indorser,  the  cashier  of  a  bank  at  Thomaston, 
Maine.  He  signed  them  all  and  inclosed  them  in  an  envelope  and 
addressed  the  envelope  to  Robinson,  at  Thomaston.  and  gave  the 
notices  so  addressed  and  inclosed  to  his  clerk  before  two  o'clock 
p.  m.,  on  that  day,  March  4,  to  mail  in  the  New  York  postoffice. 
It  was  the  duty  of  the  clerk  to  whom  the  letter  was  thus  delivered 
to  mail  it,  and  he  had  been  in  the  habit  for  years  of  attending  to 
that  branch  of  the  notary's  business.  The  clerk  was  then  called. 
who  testified  that  he  had  no  particular  memory  of  that  letter,  but 
that  he  knew  that  he  mailed  notices  of  protest  that  day,  and  that 
he  mailed  all  the  letters  that  were  given  him  to  mail  that  day 
between  the  hours  of  one  and  two. 


Smith  v.  Poillon  et  al.  441 

This  was  all  the  evidence  it  was  practicable  for  the  plaintiff 
to  give  that  the  notices  were  mailed  at  New  York.  If  mailed  as 
testified  to  by  the  clerk  between  one  and  two  on  the  4th  of  March, 
I  do  not  understand  it  is  disputed  that  they  were  mailed  in  time. 
It  was  further  shown  that  a  notice  mailed  in  New  York  at  the 
time  named  would  reach  Thomaston  in  the  state  of  Maine,  the 
residence  of  Robinson,  to  whom  the  letter  was  addressed,  if  the 
train  from  New  York  made  its  connection  with  the  early  train 
north  from  Boston,  in  the  evening-  of  March  5,  but  that  if  the 
New  York  train  failed  to  make  the  connection  at  Boston,  then  the 
letter  would  reach  Thomaston  at  noon  on  the  6th  of  March.  It 
was  also  shown  that  this  letter  reached  its  address  at  Thomaston 
on  the  5th  or  6th  of  March,  and  that  the  notices  for  Smith,  the 
next  prior  indorser,  and  for  the  defendants  were  mailed  to  Smith 
at  his  place  of  residence,  Warren,  in  the  state  of  Maine,  by  the 
next  mail  after  they  were  received  at  Thomaston,  and  that  they 
were  received  by  Smith  in  the  evening  of  March  6.  As  there  were 
two  mails  daily  from  Thomaston  to  Warren,  a  distance  of  only 
about  four  miles,  one  leaving  at  10:10  a.  m.,  and  the  other  at  1  40 
p.  m.,  the  claim  is  made  that  the  letter  did  not  reach  Thomaston 
until  the  6th  of  March,  after  the  first  mail  for  Warren  had  been 
sent,  and  thus  the  appellants  claim  there  was  some  evidence  which 
would  authorize  the  inference  that  the  letter  was  not  mailed  in 
New  York,  as  claimed  by  the  plaintiff,  on  the  4th  of  March.  But 
we  think,  under  all  the  circumstances,  such  an  inference  was 
unwarranted  and  could  not  properly  have  been  drawn  by  the  jury 
if  the  case  had  been  submitted  to  them.  The  presumption  is  very 
strong  that  Baker,  an  experienced  notary,  caused  the  notices  to  be 
mailed  to  Robinson,  as  his  duty  required,  on  the  4th,  and  that 
presumption  is  fortified  by  the  evidence  of  himself  and  his  clerk, 
and  that  presumption  and  evidence  are  not  overcome  by  the  fact 
that  the  letter  did  not  reach  Thomaston  until  the  6th  of  March. 
It  may  have  been  delayed  in  the  mails  or  by  failure  of  the  con- 
nection at  Boston.  The  fact  that  the  letter  did  not  reach  its  des- 
tination until  the  6th  of  March  does  not,  under  the  circumstances 
of  this  case,  furnish  any  evidence  that  it  was  not  mailed  between 
one  and  two  o'clock  on  the  4th  of  March. 

Smith  was  an  aged  man,  upward  of  eighty  years  old.  On  the 
morning  of  March  7  he  took  the  notices  for  the  defendants  and 
drove  to  Thomaston  for  the  purpose  of  consulting  his  counsel, 
and  there,  under  the  advice  of  his  counsel,  he  wrote  a  letter 
addressed  to  the  defendants,  and  inclosed  it  with  the  notice  for 
the  defendants  in  an  envelope  addressed  to  them,  and  caused  it  to 


442  Seasonable  Notice 

be  mailed  at  Thomaston,  in  time  for  the  mail  which  left  there  for 
New  York,  the  residence  of  the  defendant,  at  i  40  r.  m.  That 
mail  passed  through  Warren,  on  its  way  to  New  York,  at  2  p.  m. 
There  were  two  mails  each  day  from  Warren,  one  closing-  at  about 
9:30  a.  m.,  and  the  other  at  about  1 130  p.  m.,  and  that  letter  went 
in  the  same  mail  that  closed  at  Warren  at  1  ".30.  The  contention 
on  the  part  of  defendants  is,  that  the  law  required  that  that  notice 
should  have  been  mailed  by  the  first  convenient,  practical  mail  on 
the  7th,  and  hence  that  it  should  have  been  mailed  by  the  first 
mail  on  that  day;  and,  to  sustain  their  contention,  our  attention 
is  called  to  various  authorities.  (Smedes  v.  Utica  Bank,  20  Johns. 
2,J2;Mcad  v.  Bngs,  5  Cow.  303;  Scwall  v.  Russell,  3  Wend.  276; 
Howard  v.  Ives,  1  Hill,  263;  Haskell  v.  Boardman,  8  Allen,  38; 
Sussex  Bank  v.  Baldwin,  2  Harrison  [X.  J.J,  487;  Burgess  v. 
/  'reeland,  24  N.  J.  L.  71  ;  Lazvson  v.  Farmers'  Bk.,  1  Ohio  St. 
[N.  S.]  206;  Freeman's  Bk.  v.  Perkins,  18  Me.  292.)  These 
authorities,  while  not  entirely  harmonious,  undoubtedly  tend  to 
sustain  the  rule  that  the  notice  must  be  sent  on  the  next  day  by 
the  first  practical  and  convenient  post. 

The  counsel  for  the  plaintiff,  however,  contends  that  the  rule 
is,  that  notice  of  dishonor  in  such  cases  may  be  sent  to  the  prior 
party  by  any  post  of  the  next  day,  and  he  calls  our  attention  to 
several  authorities  which  tend  to  sustain  his  contention.  (Chick 
v.  Pillsbiiry,  24  Me.  458;  Whitwell  v.  Johnson,  \J  Mass.  44^; 
2  Daniels  on  Neg.  Instr.  87 ;  Story  on  Bills,  §  288 ;  Story  on 
Prom.  Notes,  §324;  3  Kent's  Com.  106.) 

From  a  careful  examination  of  all  these  authorities  and 
many  others  it  is  clear  that  the  law  is  not  precisely  settled.  It 
appears  that  at  first  it  was  supposed  to  be  necessary  that  notice 
of  dishonor  should  be  given  by  the  next  post  after  dishonor,  on 
the  same  day,  if  there  was  one.  That  rule  was  found  inconveni- 
ently stringent,  and  then  it  was  held  that  when  the  parties  lived 
in  different  places,  between  which  there  was  a  mail,  the  notice 
could  be  posted  the  next  day  after  the  dishonor  or  notice  of  dis- 
honor. Some  of  the  authorities  hold  that  the  party  required  to 
give  the  notice  may  have  the  whole  of  the  next  day.  Some  of 
them  hold  that  when  there  are  several  mails  on  the  next  day, 
it  is  sufficient  to  send  the  notice  by  any  post  of  that  day.  Other 
authorities  lay  down  the  rule,  in  g^eral_terms,  that  the  notice 
must  be  posted  by  the  first  practical  and  convenient  mail  of  the 
next  day;  and  that  rule  seems  to  be  supported  by  the  most 
authority  in  this  state.  _What  is  a  practical  and  convenient  mail. 
depends  upon  circumstances.     Tt  may  be  controlled  by  the  usages 


Smith  v.  Poillon  et  al.  443 

of  business  and  the  customs  of  the  people  at  the  place  of  mailing, 
and  the  condition,  situation  and  business  engagements  of  the 
person  required  to  give  the  notice^  The  rule  should  have  a 
reasonable  application  in  every  case,  and  whether  sufficient  dili- 
gence has  been  used  to  mail  the  notice,  the  facts  being  undis- 
puted, is  a  question  of  law. 

In  Mead  v.  Engs  (5  Cow.  303),  notices  of  dishonor  of  a  bill 
reached  the  postoffice  at  the  residence  of  the  last  indorser  at 
5  p.  m.,  and  actually  came  to  his  hands  the  next  morning.  The 
first  mail  thereafter  for  the  residence  of  the  prior  party  left  at 
1  P.  m.,  but  the  notices  for  that  party  were  not  mailed  until  after 
that  hour.  Sutherland,  J.,  said:  "The  cashier  was  not  bound  in 
the  exercise  of  due  diligence  to  have  prepared  and  forwarded 
notices  by  the  one  o'clock  mail ;  it  is  not  reasonable  to  demand 
from  him  the  neglect  of  his  other  official  duties  to  prepare  his 
letters  and  notices  during  the  usual  banking  hours ;"  and  further, 
that  "the  law  docs  not  require  the  holder  of  a  bill  or  note  to  give, 
the  earliest  possible  notice  of  its  dishonor;  itrequires  of  him  onlv 
an  ordinary  and  reasonable  diligence.:  nor  is  he  bound,  the_ 
moment  he  receives  notice  of  the  dishonor  of  a  bill,  to  lay  aside 
all  other  business  and  dispatch  notice  to  the  prior  parties  to  th£ 
bill ;  if  reasonable  diligence  is  used,  it  is  sufficient."  In  Darbishirc 
v.  Parker  (6  East,  3),  Lord  Ellenborough  observes:  "There  must 
be  some  reasonable  time  allowed  for  giving  notice,  and  that,  too, 
accommodating  itself  to  other  business  and  affairs  of  life ;  other- 
wise it  is  saying  that  a  man  who  has  bill  transactions  passing 
through  his  hands  must  be  nailed  to  the  postoffice,  and  can  attend 
to  no  other  business,  however  urgent,   till  this   is  dispatched." 

It  does  not  appear  here  how  far  Mr.  Smith  lived  from  the 
postoffice  at  Warren ;  he  was  an  aged  man  and  wanted  some 
advice  about  the  matter.  Early  on  the  day  after  he  received  the 
notices,  he  went  to  Thomaston  to  see  his  counsel,  and  thus  he 
missed  the  mail,  which  closed  at  Warren  at  9 :3c  We  think  it 
cannot  be  said  that  the  delay  was  unreasonable,  or  that  there  was 
the  absence  of  that  proper  diligence  which  the  law  requires. 
There  was,  therefore,  no  error  in  holding  as  matter  of  law  that 
due  diligence  was  used  by  Smith  in  posting  the  notice  to  the 
defendants. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur. 

Judgment  affirmed. 


444  Where  Notice  Must  be  Sent 


WHERE   NOTICE  MUST  BE  SENT.  §  1 10. 

Chouteau  v.  Webster  (1843),  6  Mete.  (Mass.)  1,  jo  Am.  Dec. 

705- 

Assumpsit  by  the  indorsee  against  the  indorser  of  two  prom- 
issory notes,  dated  at  the  city  of  New  York,  March  24th,  1837, 
and  payable  at  the  Merchants  Bank  in  that  city,  on  the  1st  of 
October,  1837.  The  case  came  before  the  court  on  the  following 
agreed  statement :  On  the  last  day  of  grace,  viz.,  on  the  4th  of 
October,  1837,  about  three  o'clock  p.  m.,  the  notes  were  delivered 
by  the  holders  thereof  to  T.  W.  Christie,  a  notary  public  residing 
in  the  city  of  New  York,  who  straightway  presented  each  of  them 
to  the  paying  teller  of  said  bank,  while  the  bank  was  open  for 
the  transaction  of  business,  and  demanded  payment  of  the  same 
of  the  said  teller,  who  refused  to  pay  them,  or  either  of  them,  for 
want  of  funds  of  the  makers.  The  notes  were  duly  protested, 
by  said  notary,  for  non-payment,  and  written  notices,  signed  by 
him,  of  the  protest  of  each  of  said  notes,  and  that  the  holders 
looked  to  the  indorsers  for  payment  thereof,  were  by  said  notary, 
by  direction  of  the  holders,  put  into  the  postoffice  in  said  city, 
on  the  morning  of  the  5th  of  said  October.  The  notices  to  the 
defendant,  as  first  indorser  of  each  of  said  notes,  were  directed  to 
him  at  Washington,  in  the  District  of  Columbia.  The  defendant's 
general  domicil  and  place  of  business  was  in  Boston,  where  he 
at  all  times  had  an  agent,  who  had  the  charge  and  management 
of  his  business  affairs,  in  his  absence ;  but  from  the  7th  of  Sep- 
tember, 1837,  to  the  16th  of  October  following,  the  defendant  was 
at  said  Washington,  attending  to  his  duties  as  a  senator  in  con- 
gress from  this  Commonwealth,  during  the  extra  session  held 
that  year. 

Letters  from  New  York  usually  reach  Washington  in  about 
48  hours,  in  the  regular  course  of  the  mail.  Such  letters,  as  are 
addressed  by  mail  to  members  of  the  senate,  during  the  session 
of  congress,  are  taken  from  the  Washington  postoffice,  by  officers 
of  the  senate,  appointed  for  that  purpose  or  charged  with  the 
duty,  and  delivered  to  the  members  in  their  places,  when  the 
senate  is  actually  in  session,  and  on  other  days  are  delivered,  by 
those  officers,  to  members  at  their  lodgings ;  and  such  was  the 
usual  course  with  regard  to  letters  addressed  by  mail  to  the 
defendant,  during  the  extra  session  of  September  and  October, 
I837- 


Chouteau  v.  Webster  445 

The  making  and  indorsement  of  the  said  notes,  and  the  con- 
sideration thereof,  are  admitted.  All  matters  of  fact,  as  well  as 
of  law,  involved  in  the  case,  are  submitted  to  the  decision  of  the 
court,  who  may  make  such  inferences  from  the  facts  stated,  as  a 
jury  would  be  authorized  to  make.  If  any  facts  are  contained 
in  this  statement,  which  it  would  not  be  competent  for  either 
party,  on  a  trial  before  a  jury,  to  prove  or  put  into  the  case, 
upon  the  other  party's  objecting  thereto,  such  facts  shall  be 
stricken  out  by  the  court,  and  neither  party  shall  be  in  any  way 
prejudiced  by  their  having  been  inserted  herein.  .And  if,  in  the 
opinion  of  the  court,  it  shall  be  necessary  to  the  rights  of  either 
party,  the  case  may  be  opened  for  the  introduction  of  evidence 
touching  facts  that  may  be  deemed  material ;  whether  the}  are 
embraced  in  this  statement,  or  not.  But  if  no  further  evidence 
or  facts  shall  be  introduced,  and  the  court  are  of  opinion  that  the 
facts  stated  would  justify  a  jury  in  finding  a  verdict  for  the  plain- 
tiff, a  default  is  to  be  entered,  and  judgment  rendered  thereon 
for  the  plaintiff ;  otherwise,  the  plaintiff  is  to  become  nonsuit. 

W.  J.  Hubbard  &  Watts,  for  the  plaintiff. 
/.  P.  Rogers  &  Hcaly,  for  the  defendant. 

Shaw,  C.  J.  It  is  admitted  that  these  notes  were  duly  made 
and  indorsed ;  that  they  were  seasonably  presented  for  payment 
at  the  bank  in  Xew  York,  where  by  their  terms  they  were  pay- 
able, and  payment  refused ;  that  notice  thereof,  in  due  form,  was 
seasonably  prepared  by  the  proper  officer,  and  put  into  the  post- 
office  ;  and  the  only  question  is.  whether,  under  the  circumstances 
stated,  it  was  rightly  addressed  to  the  defendant,  at  Washington. 

The  mercantile  law,  regulating  the  liabilities  of  parties  to 
notes~"lfnd  bills,  does  not_r_eqjure~proof  of  a,ctiin]  nntjcp~ot  dis- 
honor to  an  indorser,  in  oTder  to  charge  him ;  but  reasonable  care_ 
and  diligence  in  giving  such  notice. 

The  inference  is  very  strong  from  the  facts  stated,  as  strong, 
perhaps,  as  mere  circumstantial  evidence  could  make  it,  Jhat  th£. 
notice  actually  reached  the  defendant  at  Washington.  He  was  a 
senator  of  the  United  States ;  the  senate  was  then  in  session ;  and 
such  precautions  were  taken,  in  regard  to  letters  addressed  to 
senators,  as  to  ensure  their  delivery  with  promptness  and  cer- 
tainty. 

The  ground  relied  upon,  to  show  that  such  notice  was  not 
sufficient,  is,  that  the  defendant's  general  domicil  and  place  of 
business  was  in  the  city  of  Boston,  where  he  had,  at  all  times, 
an  agent,  who  had  the  charge  and  management  of  his  affairs. 


44ti  Where  Notice  Must  be  Sent 

But  it  docs  not  appear  that  he  hail  made  any  request  to  have 
notices  sent  to  him  at  Boston,  or  that  any  actual  or  constructive 
notice  was  had  by  the  holder  of  these  notes,  that  he  had  an  agent 
at  Boston.  This  fact,  therefore,  must  he  considered  immaterial. 
The  defendant,  though  his  domicil  was  at  Boston,  was  actually 
resident  at  Washington,  in  discharge  of  his  public  duties  as  a 
senator,  at  a  session  of  congress,  called  by  public  proclamation, 
and  continued  until  after  the  time  at  which  this  notice  was  sent ; 
so  that  the  place,  where  he  might  be  presumed  to  be  actually 
residing,  was  fixed  and  well  known  by  the  nature  of  these  duties. 
Under  these  circumstances,  the  court  are  of  opinion,  that  notice 
to  the  defendant,  by  mail,  addressed  to  him  at  Washington,  was 
good  andsujficient  notice  of  the  dishonor  of  these  notes. 

This  decision  is  founded  on  the  circumstances  of  the  particu- 
lar case,  and  may  be  varied  by  other  facts.  It  is  not  like  the  case 
of  a  merchant  stopping,  for  a  day  or  two,  at  a  hotel  or  watering 
place,  or  on  a  journey  of  business  or  pleasure;  though  we  are 
not  prepared  to  say  that  actual  personal  notice  to  an  indorser,  at 
such  place,  would  not  be  sufficient ;  but  of  this  we  give  no  opinion. 

Nor  is  it  like  the  case  of  a  banker  or  merchant,  having  exten- 
sive dealings  in  negotiable  securities,  having  an  open,  fixed,  and 
well-known  establishment  and  place  of  business,  with  agents 
having  the  custody  of  his  funds,  the  keeping  of  his  accounts,  and 
generally  charged  with  the  transaction  of  his  business  in  his 
absence.  Such  circumstances  might,  perhaps,  amount  to  con- 
structive notice,  to  the  holders  of  such  securities,  that  such  was 
the  indorser's  place  of  business,  and  of  his  request  and  direction 
that  notice  should  be  addressed  to  him  there.  It  might,  in  this 
view,  be  sufficient  to  show,  that  notice  so  given  would  be  good 
and  sufficient,  though  it  would  still  be  open  to  the  question, 
whether  other  notice  would  not  be  equally  good. 

The  fact  of  domicil  is  one  circumstance  only,  in  determining 
where  notice  shall  be  given.  A  man  may  retain  his  domicil  at 
a  place,  though  in  fact  personally  absent  therefrom,  and  absent 
with  his  family  for  years.  Such  is  the  condition  of  a  president 
of  the  United  States,  or  cabinet  minister,  residing  at  Washing- 
ton, or  of  an  ambassador  in  a  foreign  country.  His  domicil  is 
not  thereby  changed ;  but  yet  we  cannot  doubt,  that  notice  to 
such  public  officer,  at  the  place  of  his  actual  residence,  to  which, 
for  the  time  being,  he  is  fixed  by  his  public  duty,  would  be  good 
notice.  Yet  the  only  distinction  between  a  president  of  the 
United  States  and  a  senator  is,  that  the  residence  of  the  former 
at  Washington  is  somewhat  more  protracted,  and  uninterrupted 


Phillips  v.  Dii-po  447 

by  the  intervals  between  sessions  of  congress,  than  that  of  the 
latter. 

We  place  no  great  reliance,  in  this  decision,  upon  another 
rule,  which  seems  to  be  well  established,  and  to  embrace  the 
present  case;  namely,  that  notice  at  a  postoffice,  where-  the  part) 
usually  receives  his  letters,  though  not  the  place  of  his  domicil, 
is  good  notice.  Rcid  v.  Payne,  16  Johns.  218.  It  is  conformable 
to  the  more  .general  rule,  sustained  by  many  authorities,  that 
notice  shall  be  so  given,  and  at  such  place,  that  it  will  be  most 
likely  to  reach  the  indorser  promptly.  Bank  of  Columbia  v. 
Lawrence,  1  Pet.  578 ;  U.  S.  Bank  v.  Corneal,  2  Pet.  553. 

Judgment  for  the  plaintiff. 


WAIVER    OF    NOTICE    CONTAINED    IN    INSTRUMENT.       §  112. 

Phillips  r.  Dippo  {1894),  93  Iou'a  35>  57  Am.  St.  Rep.  254. 

Appeal  from  Tama  District  Court.  Hon.  J.  R.  Caldwell, 
Judge. 

Action  at  law  upon  a  negotiable  promissory  note.  A  demur- 
rer to  the  petition  was  overruled,  and,  the  defendant  electing  to 
stand  upon  his  demurrer,  judgment  was  rendered  in  favor  of  the 
plaintiff  for  the  amount  which  appeared  to  be  due  on  the  note. 
The  defendant  appeals.     Affirmed. 

Wm.  H.  Stivers,  for  appellant. 
I'incel  Drahos,  for  appellee. 

Robinson,  J. — The  note  in  suit  was  made  payable  to  defend- 
ant or  bearer,  and  contains  the  following :  "The  makers,  indors- 
ers,  and  guarantors  of  this  note  *  *  *  hereby  waive  pre- 
sentment for  payment,  notice  of  non-payment,  protest,  and  notice 
of  protest,  and  diligence  in  bringing  suit  against  any  party 
thereto."  Before  the  maturity  of  the  note,  the  defendant  wrote 
his  name  thereon,  and  transferred  it,  and  it  is  now  owned  by  the 
plaintiff.  The  grounds  of  the  demurrer  are  that  the  defendant 
is  an  indorser  of  the  note,  and  the  petition  fails  to  show  that  the 
note  was  duly  presented  for  payment,  that  payment  was  refused, 
and  that  the  defendant  was  notified  of  the  non-payment.  The  ques- 
tion we  are  required  to  determine  is  whether  the  waiver  of  present- 
ment for  payment,  protest,  and  notice  of  non-payment,  contained  in 
the  body  of  the  note,  is  effectual  as  against  an  indorser  in  blank. 


44b  Notice  Contained  in  Instrument 

ko^-fr-*-^  ^  who  was  also  the  payee.  It  is  contended  by  appellant  that  such  an 
^^Zts^^-r  indorsement  is  a  new,  independent  written  contract  between  the 
,.vi  l-  indorser  and  indorsee,  with  conditions  implied  by  law.  and  that  it 
'^~-  has  no  reference  to  a  provision  in  the  note  of  the  character  of  that 
"Vjj.  in  question.  It  was  said  in  Davis  v.  Miller,  88  Iowa,  1 14,  55  N.  \Y. 
Rep.  90,  that  "an  indorsement  constitutes  a  new  agreement  with 
.the  indorsee,  by  which  the  indorser  agrees  that  the  instrument  will 
be  paid  at  maturity,  and,  if  it  is  not  so  paid  upon  proper  demand, 
that  he  will  pay  it  if  duly  notified  of  the  default;"  and  it  was 
held  that  the  blank  indorsement  of  a  negotiable  promissory  note 
payable  by  its  terms  at  a  designated  place  did  not  require  the 
indorser,  when  his  liability  became  fixed,  to  pay  the  note  at  that 
place.  The  reason  for  that  conclusion  was  that  such  indorse- 
ments are  governed  by  the  law  of  the  place  where  they  are  made, 
and  create  obligations  which  are  to  be  performed  there,  or  gen- 
erally, and  not  at  a  place  specified.  In  other  words,  it  was  held 
that  implied  obligations  created  by  the  blank  indorsement  relate 
to  the  time  and  amount,  but  not  to  the  place,  of  payment.  There 
was  nothing  in  the  body  of  the  note  under  consideration  in  that 
case  which  referred  in  terms  to  the  indorser.  None  of  the  author- 
ities relied  upon  by  the  appellant  are  applicable  to  this  case,  for 
the  reason  that  in  none  of  them  did  the  instrument  in  question 
contain  a  provision  in  any  respect  like  the  one  we  have  set  out. 
The  part  of  that  which  referred  to  indorsers  and  guarantors  was 
without  force  as  between  the  maker  and  payee,  and  was  designed 
to  take  effect  onlv  if  the  note  should  be  indorsed.     When  the 


defendant  wrote  his  name  on  the  back  of  the  note,  and  trans- 
ferred it  without  in  any  manner  qualifying  the  effect  of  the 
indorsement,  he  necessarily  became  a  party  to  the  agreement  of 
waiver,  and  was  not  entitled  to  the  demand  andjiotice  which  an 
ordinary  indorsement  in  blank  requires.  And  this  result  does 
not  in  any  manner  depend  upon  the  fact  that  he  was  the  payee 
of  the  note.  It  is  said  in  Tied.  Com.  Paper,  section  363,  that,  "if, 
the  waiver  is  put  in  the  body  of  the  instrument,  it  enters  into. 
and  forms  a  part  of  the  "confracT  ot  everyone  who^signs  hiT^ 
name  to  the  paper,  whether  a^s^drawei-  or  indorser.  In  2  Dan- 
iel, Neg.  Inst.,  section  1092,  the  law  is  stated  as  follows:  "Some- 
times the  waiver  is  embodied  in  the  instrument  itself,  and  in  such 
cases  the  waiver  enters  into  the  contract  of  every  party  who 
signs  it,  whether  as  drawer,  maker,  acceptor,  or  indorser.  Thus, 
when  the  words  'presentation  and  protest  waived,'  or  'notice  and 
protest  of  non-acceptance  and  non-payment  waived,'  are  written 
in  the  bill,  they  are  binding,  not  only  upon  the  drawer,  but  also 


Annville  National  Bank  v.  Kettering  449 

upon  the  indorsers,  who  are  in  effect  new  drawers,  and  who 
become  parties  to  the  waiver  in  becoming  parties  to  the  bill. 
Clearly,  this  is  the  case  where  such  waiver  expressly  includes  the 
drawer  and  indorsers."  The  rule  of  these  authorities  has  sup- 
port in  the  following  cases:  Lowry  v.  Steele,  27  Ind.  170;  Bryant 
v.  Lord,  19  Minn.  405;  Bank  v.  Ewing,  78  K\.  266;  Bryant  v. 
Bank,  8  Bush,  43 ;  Smith  v.  Lockridge,  Id.  431.  See,  also,  Wood- 
ward v.  Lowry,  74  Ga.  148;  Studcbakcr  v.  Ryan,  46  Kan.  273, 
26  Pac.  Rep.  700.  We  conclude  that  the  demurrer  was  properly 
overruled,  and  the  judgment  of  the  District  Court  is 

Affirmed. 


V- 


^Si-»^N 


ORAL  WAIVER.  §111. 

Annville  Nat.  Bank  v.  Kettering   {1884),   106  Pa.  St.  331.  51 

Am.  Rep.  53d. 

Assumpsit  on  promissory  note.  Defendant  had  judgment 
below.    Opinion  states  the  point  in  dispute. 

Josiah  Fitnek  &  Son,  for  plaintiff  in  error. 
W.  M.  Derr,  for  defendant  in  error. 

Mr.  Justice  Sterrett  delivered  the  opinion  of  the  court. 

No  principle  of  the  law  merchant  is  better  settled  than  that 
demand  and  notice  of  the  non-payment  of  a  negotiable  note  may 
be  waived  by  the  indorser,  either  orally  or  in  writing,  or  by  acts 
clearly  calculated  to  mislead  the  holder  and  prevent  him  from 
treating  the  note  as  he  otherwise  would,  but  there  is  some  diver- 
sity of  opinion  as  to  what  constitutes  a  waiver  of  tUese  necessary 
prerequisites  to  charge  the  indorser!  When  a  written  waiver  of 
""demand  and  notice"  accompanies  the  indorsement,  or  is  given 
by  the  indorser  before  maturity  of  the  note,  there  can  be  no  ques- 
tion as  to  its  legal  effect ;  nor  can  there  be  any  doubt  when  the 
language  employed  clearly  imports  or  implies  the  same  thing. 
It  has  been  doubted,  however,  whether  the  words  "protest 
waived,"  written  on  a  note  by  the  indorser.  or  his  separate  request 
in  writing  not  to  protest  it,  is  a  waiver  of  both  demand  and  notice, 
and  in  some  cases  these  words  have  been  considered  insufficient 
to  dispense  with  either ;  but  the  weight  of  both  reason  and 
authority  is  that  they  do  constitute  a  waiver  of  both.  Strictly 
speaking,  the  term  "protest"  applies  only  to  foreign  bills,  but 
the  custom  to  treat  inland  bills  and  notes  in  the  same  manner  as 
foreign  bills  has  become  so  well-nigh  universal  that,  in  common 


450  Oral  Waiver 

parlance,  the  term  means  the  taking  of  such  steps  as  are  required 
to  charge  the  indorser.  For  the  same  reason,  the  word  "pro- 
tested," sometimes  employed  in  giving  notice  of  dishonor  to 
indorsers  of  inland  bills  and  notes,  clearly  implies  demand,  non- 
payment, and  consequent  dishonor  of  the  bill  or  note  in  all  cases 
where  protest  is  necessary:  1  Pars.  Liills  and  Notes,  471,  575, 
579,  582,  and  authorities  there  cited. 

It  is  not  essential  that  the  waiver  should  be  in  writing. 
When  the  fact  is  established  by  competent  evidence,  a  parol 
waiver  is  as  valid  and  binding  as  a  written  one.  The  only  dif- 
ference is  in  the  character  of  the  proof:  Barclay  v.  Weaver,  7 
Harris,  396.  It  was  there  held  that  a  verbal  agreement  between 
the  holder  and  indorser  to  renew  a  note  at  maturity,  might  be 
shown  by  oral  testimony,  and  that  demand  and  notice  were  there- 
by dispensed  with.  The  general  principle  underlying  nearly  all 
cases  of  waiver  is  that  the  indorser  has  by  word  or  deed  done 
something  calculated  to  mislead  the  holder  and  induce  him  to 
forego  the  usual  steps  to  fix  the  liability  of  the  former. 

It  is  unnecessary  to  refer  specially  to  several  well-considered 
cases  in  other  states,  holding  that  a  waiver  of  protest,  without 
more,  dispenses  with  demand  and  notice  of  non-payment.  They 
are  in  full  accord  with  our  own  cases  on  the  subject,  the  last  of 
which  is  Huckcnstein  v.  Herman,  34  Leg.  Int.  232.  That  was 
a  suit  by  the  holder  against  the  indorser  of  a  note  which  was  not 
presented  for  payment  at  maturity.  To  sustain  the  averment  of 
demand  and  notice  of  non-payment,  the  plaintiff  relied  on  the 
words  "protest  waived"  written  on  the  note  and  signed  by  the 
indorser  the  day  before,  or  early  in  the  morning  of  the  day  the 
note  matured.*  The  court  charged  in  substance  that  the  words 
were  equivalent  to  an  express  waiver  of  demand  and  notice,  and 
on  that  point  there  was  a  verdict  for  the  plaintiff.  In  the  per 
curiam  opinion  of  this  court,  affirming  the  judgment  of  the  Com- 
mon Pleas,  it  is  said :  "A  waiver  of  protest  before  maturity  of  a 
note  is  a  waiver  of  all  the  steps  leading  to  it,  and  includes  demand 
and  notice  of  non-payment.  This,  we  think,  is  the  general  under- 
standing of  a  waiver  of  protest  among  business  men.  The  very 
purpose  of  a  waiver  is  to  supersede  the  ordinary  steps  and  avoid 
trouble  and  expense.  To  waive  the  mere  act  of  the  notary,  and 
yet  suffer  the  duty  of  making  demand  and  giving  notice  of  its 
result  to  remain,  would  scarcely  be  thought  of  by  business  men." 
It  is  argued  by  the  learned  counsel  of  defendant  that  this  con- 
flicts with  the  former  ruling  of  this  court  in  Scott  v.  Greer,  10 
Barr..  103,  but  we  do  not  so  understand  it.     In  that  case  it  was 


Annville  National  Bank  v.  Kettering 


431 


held  that  the  waiver  of  a  protest  by  an  indorser  on  the  day  the 
note  matured  puts  him  in  the  same  situation  as  if  the  protest  had 
been  made  and  proved;  and,  there  being  no  contradictory  evi- 
dence, it  is  proof  under  the  Act  of  Assembly  of  demand,  refusal 
and  notice.  It  is  true  the  learned  judge  who  delivered  the  opinion 
in  that  case  intimates  that  the  prima  facie  case  thus  presented  by 
the  plaintiff  might  have  been  rebutted  by  showing  that  no  demand 
was,  in  fact,  made;  but  what  was  said  on  that  subject  was  aside 
from  the  question  before  the  court,  and,  in  so  far  as  his  remarks 
may  be  considered  in  conflict  with  the  ruling  in  Huckcnstcin  v. 
Herman,  supra,  they  cannot  be  regarded  as  authority  for  the  posi- 
tion that  a  waiver  of  protest  does  not  necessarily  imply  a  waiver 
of  demand  and  notice.  The  principle  decided  in  Huckenstein  v. 
Herman  is  akin  to  that  involved  in  Ridgzvay  &  Budd  v.  Day,  I 
Harris,  208,  and  Brittain  v  The  Doylestozvn  Bank,  5  W.  &  S., 
87.  In  the  latter  case  the  indorser,  by  memorandum  on  the  note, 
waived  "notice  of  non-payment  by  the  maker,"  and  it  was  held 
that  proof  of  demand  was  thereby  rendered  unnecessary.  "The 
interpretation,"  said  Gibson,  C.  J.,  "is  that  he  agreed  to  become 
immediately  liable,  without  more,  in  case  the  note  should  not  be 
taken  up  at  maturity." 

In  the  case  at  bar  it  is  conceded  there  was  neither  demand 
nor  notice  of  non-payment,  nor  was  there  any  written  waiver  of 
protest.  For  the  purpose  of  sustaining  the  material  averment  of 
demand  and  notice,  testimony  was  introduced  by  plaintiff  tending 
to  prove,  in  substance,  that  during  a  course  of  dealing  with  the 
bank,  defendant  had  several  notes  discounted,  and  the  proceeds 
placed  to  his  credit ;  that  when  he  first  requested  a  discount,  he 
informed  the  officers  of  the  bank  that,  desiring  to  deal  with  them, 
he  would  be  obliged  to  apply  for  discounts,  and  wished  it  to  be 
understood  that  none  of  his  notes  should  be  protested ;  that,  pur- 
suant to  this  request,  none  of  them  were  protested,  nor  was  pav- 
ment  of  them  demanded  of  the  maker;  and,  in  consequence  of 
that  understanding,  payment  of  the  note  in  suit  was  not  legally 
demanded,  nor  was  notice  of  non-payment  given  to  defendant. 
In  view  of  this  testimony  the  court  was  requested  to  charge : 

"1st.  If  an  indorser  gives  directions  to  the  indorsee,  at  the 
time  or  before  he  brings  the  note  for  discount,  that  the  same  shall 
not  be  protested,  and  this  is  assented  to  by  the  indorsee,  it  relieves 
the  latter  from  the  duty  of  making  demand  for  payment  of  the 
maker,  and  of  giving  notice  of  the  non-pavment  to  the  indorser 
of  such  note." 

"2d.     If  the   defendant   waived   protest  of  the  note  before 


452  Waiver  bv  Implication 

maturity,  no  demand  oi  the  maker  was  necessary  to  charge  him 
with  its  payment." 

The  learned  judge  refused  these  points,  saying:  "Such 
waiver  of  protest  is  prima  facie  evidence  of  presentment  to  and 
demand  upon  the  maker,  but  it  does  not  relieve  the  indorsee  from 
the  necessity  of  such  presentment  and  demand  ;"  and  he  further 
instructed  the  jury,  in  substance,  that  if,  in  point  of  fact,  no 
demand  was  made  or  no  notice  given  to  defendant,  the  plaintiff 
could  not  recover.  It  being  conceded  that  there  was  no  legal 
demand  or  notice,  the  verdict,  as  matter  of  course,  was  for  defend- 
ant. The  plaintiff's  testimony,  if  believed  by  the  jury,  was  clearly 
sufficient  to  have  warranted  them  in  finding  the  facts  as  stated 
in  the  foregoing  points,  and,  for  reasons  already  suggested,  they 
should  have  been  affirmed. 

When  the  alleged  waiver  is  in  writing,  its  construction  is 
for  the  court,  but  when  it  consists  of  verbal  communications,  it 
is  the  special  province  of  the  jury  to  consider  the  testimony  and 
ascertain  the  facts.  When  ascertained,  it  is  their  duty  to  apply 
the  law  under  the  direction  of  the  court.  Assuming  the  facts  to 
be  as  recited  in  the  points,  the  law  as  therein  stated  is  correct,  and 
hence  there  was  error  in  refusing  to  affirm  plaintiff's  first  and 
second  points,  and  in  charging  the  jury  as  complained  of  in  the 
third  specification. 

Judgment  reversed,  and  a  ■venire  facias  de  novo  awarded. 

WAIVER  BY  IMPLICATION.  §111. 

Gove  et  at  v.  Fining  (1843),  7  Mete.  (Mass.)  212,  39  Am.  Dec. 

7/0. 

Assumpsit  by  the  indorsees  against  the  indorser  of  the  fol- 
lowing note:  "Scituate,  December  27th,  1841.  Four  months  after 
date,  for  value  received,  I  promise  to  pay  to  the  order  of  Polly 
Vining  one  hundred  and  three  dollars  and  eighteen  cents  at  either 
bank  at  Boston.  Alexander  Vining."  This  note  was  indorsed 
in  blank  by  the  defendant. 

The  plaintiffs,  to  prove  their  declaration,  offered  the  deposi- 
tion of  C.  E.  Fogg,  who  deposed,  that  he,  on  or  about  the  27th 
of  April,  1842,  at  the  request  of  his  father,  Eben.  T.  Fogg,  took 
the  said  note,  and  also  a  written  notice  requesting  payment  of 
said  note,  and  went  to  the  dwelling-house  of  Polly  Vining 
and  Alexander  Vining:  that  he  saw  said  Polly,  but  did  not  see 


Gove  et  al.  v.  Vining  453 

said  Alexander,  he  not  being  at  home ;  that  he  handed  to  said 
Polly  the  note  and  written  notice,  and  she  read  them,  and  said 
that  Alexander  was  going-  down  to  see  the  deponent's  father  in  a 
short  time,  and  wished  he  would  not  sue  the  note  until  Alexander 
saw  him:  That  said  notice  was  in  the  following  words:  "A 
note  dated  December  27th,  1841,  signed  by  Alexander  Vining, 
and  indorsed  by  you,  for  $103.18,  and  payable  in  four  months 
from  date,  is  now  due,  and  you  are  requested  to  pay  the  same. 
Ebenr.  T.  Fogg,  Atty.    April  28th,  1842." 

The  defendant  admitted  that  the  statements  in  the  deposition 
were  true,  and  the  parties  took  the  case  from  the  jury,  and  agreed 
that  the  court,  on  those  statements,  should  render  judgment  for 
the  plaintiffs  or  for  the  defendant,  according  to  their  opinion 
thereon. 

Eddy,  for  the  plaintiffs. 
Kingsbury,  for  the  defendants. 

Shaw,  C.  J.  The  plaintiffs  seek  to  recover  of  the  defendant, 
as  indorser,  the  amount  of  a  promissory  note,  made  by  Alexander 
Vining  to  the  defendant  or  her  order,  and  by  her  indorsed.  The 
note  was  dated  December  27th,  1841,  payable  at  four  months 
from  date  at  either  bank  in  Boston.  The  defence  relied  on  was, 
that  there  was  no  demand  on  the  maker,  and  no  notice  of  dishonor 
to  the  defendant  as  indorser.  The  plaintiffs  relied  on  a  waiver 
of  demand  and  notice  by  the  defendant 

The  facts  were  testified  to,  in  a  deposition  of  C.  E.  Fogg,  son 
of  the  agent  with  whom  the  note  was  deposited  by  the  plaintiffs 
for  collection,  and  were  subsequently  agreed  to,,  as  a  statement  of 
facts.  It  appears,  by  this  statement,  that  on  the  day  the  note 
nominally  fell  due,  but  before  the  days  of  grace,  the  deponent,  by 
direction  of  his  father,  took  the  note,  and  went  to  the  house 
where  both  the  promisor  and  indorser  lived.  He  carried  with 
him  a  written  demand  on  the  indorser,  for  payment.  This,  how: 
ever,  though  payment  was  not  then  made,  would  not  amount  to 
a  dishonor  of  the  note,  botlfobecause  the  days  of  grace  had  not 
expired,  and  it  was  not  yet  due ;  anEPbecanse  it  was  payable  at  a 
bank  in  Boston.  But  there  was  still  ample  time  to  send  it  to 
Boston,  and  place  it  in  a  bank  there  for  collection,  if  nothing  had 
been  done  by  way  of  waiver  by  the  indorser.  It  appears  that  the 
messenger  did  not  see  the  promisor,  but  he  saw  the  indorser,  the 
defendant,  and  handed  to  her  the  written  demand  and  the  note, 
and  she  read  them.  She  said  that  Alexander,  the  promisor,  was 
going  down  to  see  the  messenger's  father  (who  had  charge  of 


454  When  Notice  Dispensed  With 

the  note  for  the  holders)  in  a  short  time,  and  wished  he  would 
not  sue  it  until  Alexander  saw  him.  Although,  literally,  this 
was  stated  as  the  request  of  the  promisor,  yet  it  was  made  by 
the  indorser,  without  any  restriction  or  qualification  on  her  part, 
and  therefore  may  be  considered  the  same  as  if  it  were  her  own. 
It  was  therefore  a  request,  by  the  indorser,  to  the  holders,  through 
their  agent,  with  full  notice  that  the  note  was  then  nominally  due, 
(though  not  legally  payable  till  three  days  after)  for  forbearance 
of  payment.  It  was  calculated  to  induce  the  holder  to  believe 
that  the  parties  who  were  liable  were  about  making  some  arrange- 
ment or  some  proposal,  by  which  it  would  be  paid,  if  he  would 
forbear  resorting  to  coercive  measures  for  a  short  time. 

And  the  court  are  of  opinion  that  when  the  indorser,  at  or 
shortly  before  the  time  when  the  note  becomes  due,  says  to  the 
holder,  that  an  arrangement  tor  its  payment  is  about  being  made, 
and  in  direct  terms,  or  by  reasonable  implication,  requests  the 
holder  to  wait  or  give  time,  it  amounts  to  an  assurance  that  the 
note  will  be  paid — that  the  promisor  or  indorser  will  pay  it— 
and  is  a  waiver  of  demand  and  notice.  It  tends  to  put  the  holder 
off  his  guard,  and  induces  him  to  forego  making  a  demand  at  the 
proper  time  and  place;  and  it  would  be  contrary  to  good  faith. 
to  set  up  such  want  of  demand  and  notice — caused  perhaps  by 
such  forbearance — as  a  ground  of  defence.  (LeMngwell  v.  White, 
i  Johns.  Cas.  99;  Mechanics  Bank  v.  Griszvold,  7  Wend.  165; 
Leonard  v.  Gary,  10  Wend.  504;  Taunton  Batik  v.  Richardson, 
5  Pick.  436;  Thornton  v.  Wynn,  T2  Wheat.  183 ;  Wood  v.  Brown, 
1  Stark.  R.  217). 

Judgment  for  the 


WHEN   NOTICE  DISPENSED  WITH.  §  II4. 

Bacon  v.  Hanna,  imp.  {1893),  13/  N.  Y.  379. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  fifth  judicial  department,  entered  upon  an  order 
made  January  22,  1892,  which  affirmed  a  judgment  in  favor  of 
defendant  entered  upon  a  verdict  directed  by  the  court. 

This  was  an  action  upon  a  promissory  note  made  by  defend- 
ant. J.  Sawyer  Hanna,  payable  in  two  months  after  date  to  the 
order  of  A.  E.  Hanna.  It  was  indorsed  by  the  payee  and  the 
defendants.  Morris  W.  Hanna  and  W.  Dwight  Munger.     Morris 


Bacon  v.  Hanna  455 

W.  Hanna  refused  to  submit  any  question  to  the  jury  and  alone 
defended.  The  court  directed  a  verdict  for  defendant,  to  which 
plaintiff's  counsel  excepted.  A  verdict  was  rendered  in  accord- 
ance with  the  direction. 

The  facts,  so  far  as  material,  are  stated  in  the  opinion. 

John  Gillette,  for  appellant. 
Edwin  Hicks,  for  respondent. 

Finch,  J.  The  complaint  involved  in  this  appeal  respects 
the  ruling  of  the  court,  which  determined,  as  matter  of  law,  that 
due  diligence  had  not  been  exercised  in  giving  notice  of  protest 
to  the_indorser,  and  refusing  to  submit  the  question,  as  one  of 
fact,  to  the  decision  of  the  jury.  The  General  Term  sustained  the 
ruling,  and  we  are  inclined  to  approve  it,  as  justified  by  the  facts. 

The  indorser  lived  in  the  town  of  Hopewell,  and  his  postoffice 
address  was  at  Chapinville  in  that  town.  He  had  resided  in  the 
same  place  for  nineteen  years,  and  at  the  time  of  the  maturity  of 
the  note  was  supervisor  of  his  town,  which  adjoined  the  village 
of  Canandaigua,  and  had  held  that  office  for  two  years.  His 
home  was  four  miles  east  of  the  east  line  of  the  village,  and  the 
notary  who  served  the  notice  had  been  at  his  house  and  conse- 
quently knew  of  its  location.  He  knew  also  that  the  indorser  was 
supervisor  of  the  town  of  Hopewell,  and  had  mailed  a  notice  of 
protest  of  a  note  preceding  the  one  in  suit,  and  of  which  the  latter 
was  a  renewal  to  the  same  indorser  at  Chapinville.  Inquiry  of 
the  maker  of  the  note  ;  at  the  postoffice  in  Canandaigua  ;  or  of  bus- 
iness men  in  that  village ;  would  have  disclosed  the  residence  of 
the  indorser  easily  and  correctly.  What  the  notary  did  was  to 
mail  a  notice  directed  to  the  indorser  at  Canandaigua,  under  the 
provisions  of  the  act  of  1857  (Chap.  416,  §  3),  which  permits  such 
notice  by  mail  where  the  indorser  lives  in  the  same  city  or  town, 
or  has  a  place  of  business  therein,  or  has  indicated  such  residence 
by  a  memorandum  added  to  his  signature,  or  where,  "from  the 
best  information  obtained  from  diligent  inquiry,"  he  is  "reputed" 
there  to  reside  or  have  a  place  of  business.  We  may  assume  that 
the  notary  may  have  forgotten  for  the  moment  his  previous  action 
in  mailing  a  notice  to  Giapinville,  and  was  in  doubt  about  the 
residence  of  the  indorser,  although  with  the  knowledge  which  he 
had  and  some  reasonable  reflection  upon  the  subject  it  would  seem 
that  his  memory  might  not  have  failed  him,  but  his  only  effort  to 
solve  the  doubt  was  to  look  into  a  directory  of  Canandaigua  to 
ascertain  the  truth.  He  there  found  this  entry :  "Hanna,  Morris 
W.,  158  Canandaigua."     The  record  does  not  show  whether  or 


45b  Agreements  to  Waive  Strictly  Construed 

not  there  is  a  street  in  the  village  bearing  its  name.  If  there  is, 
inquiry  at  that  number  would  have  disclosed  the  error.  If  there 
is  not,  the  entry  was  sufficiently  odd  and  peculiar  to  make  the 
notary's  alleged  understanding  that  the  figures  meant  number  of 
acres  owned  in  Canandaigua  inexcusable  without  some  further 
inquiry.  Prior  to  the  act  of  1857  service  upon  the  indorser  resid- 
ing in  the  same  town  at  his  place  of  business  therein  was  required. 
The  change  permitting  instead  a  service  by  mail  was  carefully 
guarded  and  limited.  Where  the  notary  relied  upon  a  "reputed" 
residence  he  was  required  to  act  from  "the  best  information 
obtained  by  diligent  inquiry/'  Merely  looking  into^a_directory. 
is  not  enough.  The  sources  of  error  in  that  process  are  too  many- 
arid  too  great.  Such  books  are  accurate  enough  in  a  general  way 
and  convenient  as  an  aid  or  assistance,  but  they  are  private  ven 
tures,  created  by  irresponsible  parties  and  depending  upon  infor 
mation  gathered  as  cheaply  as  possible  and  by  unknown  agents. 
Their  help  may  be  invoked,  but,  as  was  said  in  Lawrence  v.  Miller 
(16  N.  Y.  231),  their  error  may  excuse  the  notary,  but  will  not 
charge  the  defendant.  Merely  consulting  them  should  not  be 
deemed  "the  best  information  obtained  by  diligent  inquiry." 
(Greenwich  Bank  v.  De  Groot,  7  Hun,  210;  Baer  v.  Leppert,  12 
id.  516).  These  cases  differ  somewhat  in  their  facts,  but  clearly 
indicate  that  bare  reliance  upon  a  directory  is  not  sufficient  dili- 
gence, and  that  should  certainly  be  the  rule  upon  facts  such  as  are 
disclosed  in' the  present  case. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur. 

Judgment  affirmed. 

agreements  to  waive  strictly  construed.        §  hi. 
Freeman  v.  O'Brien  {1874),  38  Iowa  406. 

Appeal  from  Johnson  Circuit  Court. 

This  action  is  brought  on  a  promissory  note,  against  William 
O'Brien  as  maker,  and  Michael  Cash  as  indorser  thereof.  The 
defendant  Cash  demurred  to  the  petition.  The  court  sustained 
the  demurrer  and  plaintiff  appeals.  The  further  facts  are  stated 
in  the  opinion. 

Williams  &  Ewing,  for  appellant. 
Boal  &  Jackson,  for  appellee. 


Freeman  v.  O'Brien  -A57 

Miller,  Ch.J. — The  note  upon  which  suit  is  brought  is  nego- 
tiable. It  is  alleged  that  before  the  maturity  thereof  it  was 
indorsed  in  blank  by  Michael  Cash,  the  payee  thereof,  to  the  plain- 
tiff, and  that  the  indorser  had  notice  of  the  dishonor  of  the  same ; 
that  demand  for  payment  was  made  and  refused  after  the  note 
matured,  and  that  notice  in  writing  of  such  demand  was  given 
to  Cash  about  four  years  after  the  maturity  of  the  note.  It  is 
further  alleged  in  an  amendment  to  the  petition  that  plaintiff 
bought  the  note  from  Cash,  paying  him  the  full  amount  thereof ; 
that  at  the  time  of  the  indorsement  and  transfer  of  the  note  it 
was  orally  agreed  between  the  parties  that  "the  plaintiff  should 
not  sue  on  said  note  but  wait  until  defendant  O'Brien  could  pay 
said  note,  or  until  Cash  should  give  notice  to  commence  action 
on  said  note ;"  that  at  numerous  times  between  the  transfer  of  the 
note  and  the  commencement  of  this  action,  "Cash  has  notified 
plaintiff  not  to  push  or  distress  said  O'Brien  and  at  all  times 
assured  plaintiff  that  he  as  indorser  would  stand  good  for  the 
payment  of  said  note ;"  that  "on  or  about  the  time  of  the  maturity 
of  said  note  plaintiff  gave  notice  of  the  same  to  O'Brien  who 
nevertheless  failed  to  pay  the  same ;"  that  at  or  about  the  day  of 
the  commencing  of  this  suit,  Cash  came  to  plaintiff  and  notified 
him  that  he  would  not  stand  good  any  longer  for  said  note  unless 
plaintiff  should  at  once  commence  an  action  to  recover  the 
amount  of  said  note,  and  on  the  same  day  plaintiff  took  steps  to 
commence  this  action." 

The  court  sustained  a  demurrer  to  the  petition  as  amended, 
which  ruling  is  assigned  as  error. 

I.  It  is  conceded  that  the  plaintiff  did  not,  upon  the  matur- 
ity of  the  note,  make  due  demand  upon  the  maker  of  the  note, 
and  give  due  notice  to  the  indorser  of  the  failure  to  pay  bv  the 
maker.  It  is  claimed,  however,  that  the  indorser  waived  the 
necessity  of  demand  and  notice  required  by  the  commercial  law 
in  order  to  fix  an  absolute  liability  upon  him,  and  that  he  is  there- 
fore liable,  notwithstanding  the  failure  to  make  due  demand  and 
give  due  notice. 

Appellant  urges  that  the  verbal  agreement,  alleged  to  have 
been  made  at  the  time  of  the  transfer  of  the  note  to  plaintiff,  to 
the  effect  that  plaintiff  should  not  sue  the  maker,  O'Brien,  until  he 
could  pay  or  until  the  indorser  should  notify  plaintiff  to  sue. 
operated  as  a  waiver  of  demand  and  notice.  It  seems  clear  to 
us  that  this  would  be  giving  to  this  alleged  agreement  a  meaning 
and  effect  far  beyond  its  scope,  and  not  within  the  contemplation 
of  the  parties.    The  agreement  that  suit  was  to  be  delayed,  by  no 


45*  Agreements   ro  Waive  Strictly  Construed 

means  exonerated  the  plaintiff  from  the  duty  of  making  demand 
upon  the  maker  at  the  maturity  of  the  note,  and  from  giving  the 
indorser  due  notice  of  default  in  payment.  These  acts  were  neces- 
sary to  fix  an  absolulte  liability  upon  th~e*  indorser.  and  they  could 
be  done  without  infringing  upon  the  agreement  to  delay  suit  on 
the  note.  There  is  no  inconsistency  between  the  agreement 
alleged  and  the  duty  to  make  demand  and  give  notice. 

The  substance  of  the  alleged  agreement  is  that  if,  at  the 
maturity  of  the  note,  the  maker  was  not  able  to  pay,  the  plaintiff 
was  not  to  sue  until  he  was  able,  or  until  the  indorser  gave  notice 
that  he  should  sue.  From  the  terms  of  the  agreement  it  is  rea- 
sonably clear  that  it  was  contemplated  by  the  parties  that  demand 
of  payment  should  be  made  upon  the  maker  of  the  note  at  matur- 
ity, else  how  was  it  to  be  known  whether  he  was  able  to  pay  or 
not.  It  is  equally  clear  that  in  case  of  the  refusal  of  the  maker  to 
pay  on  demand,  the  indorser  was,  under  the  agreement,  entitled  to 
notice,  so  that  he  could  determine  whether  or  not  to  require  the 
plaintiff  to  sue. 

2.  It  is  further  alleged  that  Cash  constantly  after  the 
indorsement  assured  plaintiff  that  he  would  stand  good  for  the 
payment  of  the  note.  It  is  claimed  that  this  agreement  or  assur- 
ance operated  as  a  waiver  of  demand  and  notice.  Agreements  of 
this  sort  are  always  construed  strictly  and  are  never  extended 
beyond  the  fair  import  of  the  terms  used.  (Berkshire  B'k  v. 
Jones,  6  Mass.,  524;  Central  B'k  v.  Davis,  19  Pick.,  373;  Union 
B'k  v.  Hyde,  6  Wheat.,  572 ;  May  v.  Coffin,  4  Mass.,  341 ;  Backus 
v.  Shiphcrd,  11  Wend.,  629).  If  the  alleged  assurance  or  promise 
to  stand  good  was  made  prior  to  the  maturity  of  the  note,  it  would- 
be  an  undue  extension  ~6f  its  terms  to  hold  that  the  indorser 
intended  thereby  to'stancTgnotf'Tdr  the  payment  of  the  note  abso- 
InteTv^jiohvithsfantlino-  plaintiff  should  tail  to  make  demand  and 
give  him  notice  of  non-payment.  An  understanding  as  follows : 
"I  do  request  that  hereafter  any  notes  that  may  fall  due  at  the 
Union  Bank,  on  which  I  am  or  may  be  indorser,  may  not  be  pro- 
tested, as  I  will  consider  myself  bound  in  the  same  manner  as  if 
the  same  had  been  legally  protested,"  was  held  in  Union  Bank  v. 
Hyde,  supra,  to  be  so  ambiguous  and  doubtful  whether  it  was 
intended  thereby  to  waive  demand  and  notice,  that  further  proof 
of  such  intention  was  required.  In  that  case  there  was  doubt  as 
to  the  intention  of  the  party,  and  under  the  rule  of  .strict  construc- 
'io.n  further  evidence  was  demanded.  In  the  case  before  us  the 
language  used  does  not  approach  near  enough  to  a  waiver  to 
become  doubtful. 


Freeman  v.  O'Brien  459 

Under  the  allegation  in  the  petition  the  assurances  or  prom- 
ises to  stand  good  were  made  after  the  maturity  of  the  note  as 
well  as  prior  thereto.  It  is  well  settled  that  an  indorser  of  a 
negotiable  instrument  may  waive  the  objection  of, a  want  of  due 
presentment  and  notice,  by  a  promise  to  pay  the  same  made  after 
default,  but  in  order  to  make  such  a  waiver  binding  "it  must  be 
clearly  established  and  deliberately  made  after  a  full  knowledge 
of  the  facts,"  and  it  will  not  be  presumed  or  implied  from  doubt- 
ful  circumstances,  or  sudden  acknowledgments,  or  hastyCxpres- 
sions.  (Balhu  v.  bctckc  ct  a/./ii  Iowa,  204;  Allen  v.  Harrak, 
3oTowa,  363 ;  Story  on  Prom.  Notes,  §  275,  and  notes ;  1  Parsons 
on  Notes  and  Bills,  601).  The  law  will  not  infer  that  an  indorser, 
who  promises  to  pay  the  note  after  maturity,  had  knowledge  that 
it  was  not  duly  presented.  (Abbott  v.  Striblen,  6  Iowa,  on  p. 
J97)-  The  party  alleging  the  promise  m^ist_also_aJleg^jm^_prove 
that  it  was  made  with  a  full  knowledge,  of  the  fact  that  the  prom-  .. 
isor  was  released  from  legal  obligations  to  pay  the  same.  (  Ballin 
v.  BetcklTeTTiT^lMprwT.  '  Tff  the  case  before  us  there  is  no  allega- 
tion that  the  indorser,  at  the  time  of  the  alleged  promises,  made 
after  the  maturity  of  the  note,  had  knowledge  that  the  note  had 
not  been  duly  presented  to  the  maker  for  payment  at  maturity  and 
payment  thereof  refused.  There  is  indeed  no  allegation  that  he 
had  any  knowledge  whatever  in  respect  to  the  fact  of  present- 
ment.   The  judgment  of  the  Circuit  Court  will  be 

Affirmed. 

EXCUSE  OF   NOTICE,  TEMPORARILY  OR  PERMANENTLY.      §§  II4-II5. 

Windham  Bank  v.  Norton.     (See  page  384.) 
Pier  v.  Heinrichshoffen.     (See  page  392.) 


WHERE  NOTICE  NEED  NOT  BE  GIVEN  TO  INDORSER.         §  II7. 

In  re  Sivift.     (See  page  400.) 
Am.  Nat.  Bank  v.  Junk  Bros.     (See  page  420.) 


460  Liability  of  Drawee  Retaining  the  Bill 


LIABILITY  OF  DRAWEE   RETAINING  THE  BILL.  §  139- 

Westberg  v.  Chicago  Lumber  &  Coal  Co.  (Jpoj),  117  Wis.  389. 

See  §  3-4. 

Appeal  from  a  judgment  of  the  Circuit  Court  for  Bayfield 
county:    John  K.  Parish,  Circuit  Judge.     Reversed. 

Action  upon  a  negotiable  bill  of  exchange  drawn  upon  the 
defendant  in  favor  of  the  plaintiff  by  the  Lien-Neally  Lumber 
Company  for  $585,  alleged  to  have  been  accepted  by  the  defend- 
ant. The  answer  was  a  general  denial.  The  evidence  disclosed 
that  the  Lien-Neally  Company,  sawmill  owners,  had  purchased 
from  the  plaintiff  certain  logs  or  stum  page  amounting  to  $585  ; 
that  they  had  sold  product  of  their  mill,  including  that  of  these 
logs,  to  the  defendant,  and  were  in  the  habit  of  making  orders 
and  drafts  upon  the  latter  for  money  to  pay  their  various  bills. 
About  April  21st,  upon  plaintiff's  application  for  payment,  they 
made  out  an  order  upon  the  defendant  substantially  as  follows: 

"To  Chicago  Lumber  &  Coal  Co. : 

"Please  pay  to  John  Westberg  five  hundred  eighty-five  (585) 
dollars  for  logs  delivered  at  Bibon  as  per  contract. 

"[Signed]     Lien-Neally  Lumber  Co." 

They  had  plaintiff  write  his  name  on  the  back  of  it,  and  then 
Mr.  Lien  mailed  that  order,  in  connection  with  other  orders  and 
time-checks  aggregating  some  $2,000,  to  the  defendant,  accom- 
panied by  a  letter  the  contents  of  which  are  not  disclosed.  The 
defendant's  representative  denied  any  memory  of  the  or^der  or 
draft  in  favor  of  the  plaintiff.  It  was  proved,  however,  that  he 
sent  to  the  Lien-Neally  Company  the  money  for  the  other  orders 
inclosed  in  the  same  letter.  Plaintiff  never  heard  from  the  defend- 
ant, but  made  repeated  applications  to  the  Lien-Neally  Company 
for  payment,  and  was  put  off  from  time  to  time  by  promises,  until 
finally  they  refused  to  pay,  saying  he  must  look  to  the  defendant. 
At  that  time  the  defendant  had  paid  drafts  of  that  company  to 
more  than  the  amount  of  the  indebtedness  to  it,  and  refused  to 
pay  this.     The  plaintiff's  draft  never  was  returned  to  him. 

On  the  trial,  a  special  verdict  being  requested,  the  court 
submitted  but  one  question,  namely,  whether  the  defendant 
received  this  draft  on  or  before  April  23d,  which  was  answered 
in  the  affirmative,  and  thereupon  the  court  found  that  the  plain- 
tiff delivered  that  order  for  acceptance  on  or  before  April  23d ; 


Westberg  v.  Chicago  Lumber  and  Coal  Co.  461 

that  it  was  received  by  the  defendant,  and  was  by  it  destroyed, 
and  that  the  defendant  is  indebted  to  the  plaintiff  in  the  amount 
thereof,  with  interest ;  the  last  conclusion  being  predicated  upon 
the  theory  that  the  retention  and  destruction  of  the  order  consti- 
tuted an  acceptance.  From  judgment  in  accordance  with  that 
finding  the  defendant  appeals. 

For  the  appellant  there  was  a  brief  by  Lamorcux  &  Shea,  an 
oral  argument  by  W.  F.  Shea. 

E.  F.  Gleason,  for  the  respondent. 

Dodge,  J.  Rendition  of  judgment  in  favor  of  plaintiff  in 
this  case  can  be  justified  only  on  one  of  two  theories — either  that 
in  law  an  implication  of  acceptance  results  from  the  mere  physical 
receipt  of  a  bill  of  exchange  by  the  drawee,  followed  by  silence, 
or  that  all  other  facts  essential  to  such  implication  were  undis- 
puted or  were  supported  by  inference  from  undisputed  facts  so 
clear  and  unavoidable  that  no  reasonable  mind  could  draw  any 
other.  Appellant  had  the  right  to  have  each  controverted  ques- 
tion of  fact  decided  by  the  jury. 

Upon  the  question  of  law  as  to  when  implied  or  constructive 
acceptance  takes  place,  the  authorities  are  reasonably  clear  and 
approximately  unanimous.  Upon  delivery  for  acceptance,  the 
drawee  is  not  bound  to  act  at  once.  He  has  a  right  to  a  reasonable 
time — usually  twenty-four  hours — to  ascertain  the  state  of 
accounts  between  himself  and  the  drawer,  and  until  expiration 
pfTha-t  time  the  holder  has  no  right  to  demand  an  answer,  nor, 
without  categorical  answer,  to  deem  the  bill  either  accepted  or 
dishonored;  not  accepted,  because  of  the  right  of  drawee  to  con- 
sider before  he  binds  himself;  not  dishonored,  because  both 
drawer  and  drawee  have  the  right  that  their  paper  be  not  dis- 
credited during  such  period  of  investigation.  Aftpr  the  expira- 
tion  of  that  reasonable  time  the  holder  has  a  right  to  know 
whether  the  drawee  assumes  liability  to  him  by  accepting.  and: 
if  not,  he  has  a  right  to  return  of  the  document,  so  that  he  may 
protest  or  otherwise  proceed  to  preserve  his  rights  against  the 
drawer.  The  concensus  of  authority  is.  however,  that  jjiejhgy 
rests  on  the  holder  to  demand  either  acceptance  or  retufnof  the 
bill,  and  that  mere  inaction  on  the  nart  nt  the  drawee  has  no  errecE 
Affpr  the  pypTraHon  ot  this  time  for  investigation,  the  drawee 
may,  by  retention  of  the  bill,  accompanied  by  other  circumstances^ 
become  bound  as' an  acceptor;  not,  howevefT  bv  mere  retention! 
TWp  seem  tr>  he  tWr>  phases  ot  conduct  recognized  by  the 
authorities  as  charging  the  drawee:    one  purely  contractual,  as 


462  Liability  of  Drawee  Retaining  the  Bill 

v~- A-o  ^  where  the  retention  is  accompanied  by  such  custom,  promise,  or 
tezz*XZ~-*-  notification  as  to   warrant  the   holder,  to  the  knowledge  of  the 
hirlrt  n       dri— --,  in  understanding  that  the  retention  declares  acceptance; 
L."^   the  other,  where  the  conduct  of  the  drawee  is  substantially  tor- 
tious and  amounts  to  a  conversion  of  the  bill.     This  is  the  phase 
of  conduct  which  our  negotiable  instrument  statute  (sec.  1680k, 
ch.  356,  Laws  of  1899)   has  undertaken  to  define  and  limit  as 
"refusal  (not  mere  neglect)  to  return  the  bill,  or  destruction  of  it; 
reiterating  the  common-law  rule  that  mere  retention  of  the  bill  is 
not  acceptance.     (Overman  v.  Hoboken  Bank,  31  N.  J.  Laws  563  ! 
McEowen  &  Co.  v.  Scott,  49  Vt.  376 ;  Colo.  Nat.  Bank  v.  Boett- 
chcr,  5  Colo.  185;  Dickinson  v.  Marsh,  57  Mo.  App.  566;  Dun- 
avan  v.  Flynn,   118  Mass.  537;  Holbrook  v.  Payne,   151   Mass. 
383,  24  N.  E.  210;  Gates  v.  Eno,  4  Hun.  96;  Matteson  v.  Moul- 
ton,  11  Hun.  268,  affirmed  79  N.  Y.  627;  Hall  v.  Steel,  68  111. 
231;  First  Nat.  Bank  v.  McMichael,  106  Pa.  St.  460;  Koch  v. 
Howell,  6  Watts  &  S.  350;  Short  v.  Blount,  99  N.  C.  49>  5  S.  E. 
190;  Boyce  v.  Edwards,  4  Pet.   11 1;  Bank  of  the  Republic  v. 
Millard,' 10  Wall.  152;  1   Daniel,  Neg.  Inst.  §§499.  5°°-)   Xhe 
doctrine  of  constructive  acceptance  is  based  on  the  general  prin- 
ciples" of  estoppel.     H  the  conduct  of  the  drawee  will  prejudice 
the  existing  rights  of  the  holder,  unless  it  means  acceptance,  and 
the  drawee  has  knowledge  of  such  fact,  he  is  estopped  to  deny 
the   only   purpose   which   could   render   his   conduct  Innocuous" 
namely,  acceptance  of  the  bilk     This  underlying  principle  sug- 
gests the  reasons  for  many  oFThe  limitations  upon  the  implication 
of  acceptance  from  conduct ;  as,  for  example,  that  such  implication 
arises  only  when  the  bill  is  presented  for  acceptance,  and  that 
no  one  but  the  holder  (payee  or  indorsee)  can  make  such  tech- 
nical   presentment.      2    Randolph,    Comm.*  Paper,    §§568,    572; 
1  Daniel,  Neg.  Inst.  §455;  sec.   1681— 2,  Neg.  Inst.  Law  Wis. 
ch.   356,   Laws   of    1899.     Only   when   the   drawee   knows   that 
acceptance  is  accepted  would  he  suppose  that  his  conduct  can 
lead  to  a  belief  that  he  does  accept.     Only  when  the  presentment 
is  by  the  holder,  whose  conduct  and  rights  must  be  affected  by 
acceptance  or  refusal,  is  the  draw?ee  charged  by  the  strict  rules  of 
the  law  merchant  with  notice  that  his  conduct  may  so  injuriously 
affect  the  person  delivering  the  bill  to  him. 

In  the  light  of  these  rules  of  law  it  is  at  once  apparent  that 
the  verdict  alone  does  not  present  sufficient  facts  to  charge 
defendant  with  constructive  acceptance.  Not  only  must  he  have_ 
received  the  bill,  as  the  jury  found,  but  hejnnst  knowingly  havx 
received   it   from   the  payee   or   his   authorized   agent,   and    for 


Westuerg  v.  Chicago  Lumber  and  Coal  Co.  463 

acceptance;  and  even  then  there  must  have  been  something  more 
than  mere  retention — either  destruction  or  refusal  to  return  to 
the  holder,  if  within  the  negotiable  instrument  statute,  or  some 
circumstances,  contractual  or  tortious,  to  arouse  estoppel,  if,  by 
reason  of  non-negotiability^  this  instrument  is  governed  only  by 
the  common  law.  We  must,  therefore,  turn  to  the  evidence  to 
ascertain  whether  all  these  necessary  additional  facts  were  estab- 
lished beyond  controversy.  True,  the  court  filed  so-called  find- 
ings of  fact  declaring  some  of  them  to  exist,  but,  as  appellant 
claimed  that  the  fact  of  acceptance  should  be  submitted  to  the 
jury,  it  did  not  consent  that  the  court  might  assume  to  decide 
either  the  facts  or  the  inferences  therefrom,  unless  free  from 
controversy. 

The  only  evidence  of  the  manner  and  purpose  of  the  send- 
ing of  this  draft  is  that  the  drawer  sent  it  in  the  same  inclosure 
with  numerous  other  documents  similar  in  form,  with  which 
plaintiff  had  no  connection.  The  contents  of  the  accompanying 
letter  are  not  disclosed,  but  it  is  reasonably  clear  that  the  other 
orders  were  not  sent  for  acceptance  on  behalf  of  the  payees 
therein,  but  merely  as  vouchers  between  the  drawer  and  drawee ; 
for,  evidently  as  expected,  the  latter  sent  money  in  response 
thereto  direct  to  the  drawer.  The  plaintiff's  order  or  draft, 
having  no  time  of  payment  expressed,  was  payable  on  demand, 
and  did  not  need  to  be  presented  for  acceptance,  and  therefore 
did  not  of  itself  suggest  any  demand  for  such  action,  i  Ran- 
dolph, Comm.  Paper,  §119;  1  Daniel,  Neg.  Inst.  §454.  The 
witness  Lien  testified,  "I  mailed  it  in  behalf  of  the  Lien-Neally 
Lumber  Co."  Plaintiff  said  :  "I  didn't  mail  it  myself.  Lien  said 
he  would  mail  it.  I  left  it  to  him."  And  again :  "I  was  expect- 
ing money  on  this  draft.  Mr.  Lien  said  he  would  send  the  money 
down  to  me."  This  is  the  substance  of  all  the  evidence  as  to  the 
circumstances  under  which  this  paper  came  to  the  hands  of  the 
defendant.  We  need  not  say  more  than  that,  instead  of  con- 
clusively establishing,  as  the  court  found,  that  "the  plaintiff 
delivered  the  said  order  for  acceptance  to  the  defendant,"  it  quite 
as  much  tends  to  show  the  contrary,  namely,  that  the  drawer, 
with  consent  of  plaintiff,  sent  it  as  a  voucher  for  money  expected 
to  be  remitted  to  that  corporation  and  by  it  paid  over  to  plaintiff. 
There  is  no  particle  of  evidence  to  establish  existence  of  any 
communication  or  circumstance  which  could  suggest  to  defendant 
that  plaintiff  sent  it  or  authorized  its  sending,  that  any  acceptance 
was  demanded  or  expected,  or  that  plaintiff's  relations  with  tHe 
drawer  would  be  affected  by  silence. 


464  Liability  of  Drawee  Retaining  the  Bill 

If,  however,  both  of  these  questions  could  be  answered  in 
the  affirmative,  there  would  still  remain  the  question  of  fact 
whether  defendant's  conduct  was  such  as  to  warrant  inference 
or  implication  of  acceptance.  There  is  no  direct  evidence  of 
anything  except  long-continued  retention  of  the  draft,  and  no 
evidence  that  any  demand  was  ever  made,  either  for  decision  as 
to  acceptance  or  for  return.  The  court  sought  to  meet  this  ques 
tion  by  its  finding  that  defendant  destroyed  the  draft.  Of  this 
there  is  no  direct  proof,  the  sole  evidence  on  the  subject  being 
that  of  defendant's  agent  that  he  had  no  recollection  about  it, 
and  did  not  know  whether  or  not  it  was  among  papers  in  defend- 
ant's Chicago  office.  Whether  this  might  have  warranted  the 
jury  in  so  doing,  it  certainly  was  not  so  wholly  inconsistent  with 
any  other  as  to  require  the  court  to  raise  the  inference  of  destruc- 
tion as  matter  of  law. 

Hence  we  must  conclude  that  there  were  at  least  three  ques- 
tions of  fact  on  which  the  jury  were  not  permitted  to  decide,  as 
to  which  the  evidence  and  inferences  were  not  beyond  contro- 
versy, at  least  in  favor  of  plaintiff.  Whether  there  was  any 
evidence  to  support  such  a  decision  we  need  not  decide,  for  there 
was  no  motion,  after  verdict,  for  judgment  in  defendant's  favor. 
A  new  trial  must,  therefore,  be  directed. 

As  a  guide  to  the  court  and  parties  upon  such  new  trial  it 
seems  important  that  we  declare  whether  the  instrument  in  suit 
is  within  the  purview  and  control  of  our  negotiable  instrument 
law,  above  cited.  Whether  such  paper  continues  to  be  a  bill  of 
exchange  in  pursuance  of  our  earlier  decisions  (Mehlberg  v 
Tisher,  24  Wis.  607;  Schicrl  v.  Baumel,  75  Wis.  69,  43  N.  W. 
724),  it  certainly  is  not  a  negotiable  bill  within  the  definition  of 
sec.  1680,  Stats.  180,8,  as  amended  by  ch.  356,  Laws  of  1899, 
which  requires  that  such  an  instrument  shall  be  payable  to  order 
or  bearer.  It  seems  clear  from  the  title  that  the  codifying  law  of 
1899  is  intended  to  regulate  only  negotiable  instruments.  Selover. 
Neg.  Inst.  Laws,  §  2.  It  therefore  does  not  affect  or  control  the 
rights  of  the  parties  upon  this  paper. 

Judgment  reversed,  and  cause  remanded  for  a  nezv  trial 


Hannum  v.   Richardson  465 

Section   XI — Contract   of  the  Vendor — Warranties   of 
Qualified  [ndorsek  and  Transferer  by  Delivery.     §67. 

Hannum  v.  Richardson  (1875).   /<v  ,L  508,  21  Am.  Rep.  152. 

Assumpsit  for  false  warranty  of  a  promissory  note.  Plea, 
the  general  issue,  and  trial  by  jury,  December  Term,  1874,  Bar- 
rett, J.,  presiding. 

Said  note  was  for  $58,  dated  Aug.  6,  1870,  payable  to  the 
order  of  one  Mcintosh  &  Co.  30  days  after  date,  signed  by  one 
Lincoln,  indorsed  by  the  payees  to  defendant,  and  by  defendant 
to  plaintiff  without  recourse  to  the  payees  or  the  defendant. 

/.  F.  Deane  and,  M.  P.  Sawyer,  for  defendant. 
Walker  &  Goddard,  for  plaintiff. 

The  opinion  of  the  court  was  delivered  by 

Pierpoint,  Ch.  J.  It  may  be  observed  in  the  outset,  that  this 
action  is  not  brought  by  the  plaintiff  as  the  indorsee  of  the  note 
referred  to  against  the  defendant  as  the  indorser,  and  the  action 
is  not  based  upon  the  indorsement,  but  is  brought  upon  an  alleged 
warranty  by  the  defendant  that  the  note  was  a  valid  and  binding 
note,  based  upon  a  valid  and  lawful  consideration,  when  in  fact  it 
was  given  for  an  illegal  consideration,  and  was  at  its  inception 
void.  On  trial  the  plaintiff  introduced  evidence  in  support  of  his 
declaration.  After  the  evidence  was  in,  the  defendant  insisted 
that  as  it  appeared  from  the  note  that  it  was  indorsed  by  the 
defendant  "without  recourse,"  the  legal  effect  of  the  indorsement 
could  not  be  varied  or  controlled  by  evidence  outside  of  the 
indorsement  itself — that  the  same  was  conclusive  in  that  respect; 
but  the  court  held  that  such  indorsement  was  not  of  itself  con- 
clusive of  its  legal  effect  in  such  sense  as  to  exclude  the  evidence 
aliunde;  and  submitted  the  case  to  the  jury  in  accordance  with 
such  ruling,  and  it  is  upon  this  decision  and  the  charge  of  the 
court  in  respect  to  it,  that  the  only  question  that  has  been  raised 
and  discussed  by  the  defendant's  counsel  arises. 

What  would  have  been  the  effect  of  this  objection  if  the 
action  had  been  based  upon  the  indorsement,  it  is  not  necessary 
now  to  inquire.  P>v  indorsing  the  note  "without  recourse,"  the 
defendant  refused  to  assume  the  responsibility  and  liability  xyjiieh 
the  law  attaches  to  an  unqualified  indorsement,  so  that  in  respect 
to  such  liability,  it  may  perhaps  be  regarded  as  standing  without 


itiG  Contract  of  the  Vendor 

an  indorsement.  If  it  is  to  be  so  regarded,  then  in  what  position 
do  these  parties  stand  in  respect  to  the  transaction  ?  The  principle 
is  well  settled,  that  where  personal  property  of  any  kind  is  sold, 
there  is  on  the  part  of  the  seller  an  implied  warranty  that  he  has 
title  to  the  property,  and  that  it  is  what  it  purports  to  be,  and  is 
"that  for  which  it  was  sold,  as  understood  by  the  parties  at  the 
time ;  and  in  such  case,  knowledge  on  the  part  of  the  seller  is  not 
necessary  to  his  liability.  The  implied  warranty  is,  in  this  respect, 
like  an  express  warranty,  the  scienter  need  not  be  alleged  or 
proved.  Edwards,  in  his  work"  on  Bills  and  Promissory  Notes, 
188,  says:  "One  who  transfers  a  negotiable  instrument  by  deliv- 
ery or  by  indorsement,  impliedly  guarantees  that  it  is  genuine, 
and  that  he  has  title  to  it.  The  rule  is  the  same  in  regard  to  per- 
sonal property.  The  vendor  of  a  chattel  always  gives  an  implied 
warranty  of  the  title.  (15  Johns.  240;  6  Cow.  484;  4  Duer, 
[N.  Y.]  191;  6  Johns.  5).  Though  the  indorser  transfers  the 
note  upon  condition  that  it  is  to  be  collected  at  the  risk  of  the 
indorsee,  he  is,  nevertheless,  responsible  if  the  note  proves  to  be 
a  forgery."    (Edwards,  289). 

In  this  case  the  note  in  question  was  given  for  intoxicating 
liquor  sold  in  this  state  in  violation  of  law,  and  therefore  was 
void  at  its  inception ;  in  short,  it  was  not  a  note,  it  was  not  what 
it  imported  to  be,  or  what  it  was  sold  and  purchased  for ;  it  is  of 
no  more  effect  than  if  it  had  been  a  blank  piece  of  paper  for 
which  the  plaintiff  had  paid  his  fifty  dollars.  In  this  view  of  the 
case  we  think  the  defendant  is  liable  upon  a  warranty  that  the 
thing  sold  was  a  valid  note  of  hand. 

The  plaintiff  has  declared  as  upon  an  express  warranty.  If 
he  could  prove  one,  very  well ;  if  he  could  not,  the  implied  war- 
ranty is  just  as  available  to  him,  the  declaration  being  according 
to  its  legal  effect. 

This  view  of  the  case  relieves  it  from  all  embarrassment 
^T*  growing  out  of  the  question  as  to  the  admissibility  of  parol  testi- 
mony to  vary  the  indorsement,  as  the  effect  of  the  indorsement 
is  really  not  involved  in  the  case.  And  the  ruling  and  charge  of 
the  court  were  really  more  favorable  to  the  defendant  than  he 
had  the  right  to  ask. 

The  exceptions  to  the  overruling  of  the  motion  in  arrest  were 
waived.  The  exceptions  to  the  refusal  to  set  aside  the  verdict  as 
against  the  evidence,  this  court  refuses  to  hear,  the  decision  of 
the  County  Court  being  conclusive  in  such  cases. 

Judgment  affirmed. 


"w-v   ^^^ 


Challiss  v.  McCrum  467 


Challiss  z>.  McCrum  (1879),  22  Kan.  if,y,  31  Am.  Rep.  181. 

Error  from  Atchison  District  Court. 

McCrum  sued  Challiss  to  recover  the  sum  of  $229.60,  with 
interest  thereon  at  seven  per  cent,  per  annum,  from  December 
10th,  1875,  alleged  to  be  due  plaintiff  on  a  certain  promissory 
note  by  defendant,  indorsed  without  recourse,  and  transferred  to 
plaintiff.  At  the  March  Term,  1878,  of  the  district  court,  the 
defendant  Challiss  interposed  a  general  demurrer  to  the  petition, 
which  was  overruled,  and  to  review  this  ruling  the  case  is  brought 
here.    All  necessary  facts  appear  in  the  opinion. 

IV.  IV.  Guthrie,  for  plaintiff  in  error. 
W .  D.  Webb,  for  defendant  in  error. 

The  opinion  of  the  court  was  delivered  by 

Brewer,  J.  On  December  4,  1871,  plaintiff  in  error  loaned 
one  Edward  A.  Ege  $250,  and  took  his  note  therefor  in  the  sum 
of  $265,  payable  to  Richard  Probasco  or  bearer,  and  secured  by 
mortgage.  Long  after  its  maturity,  and  in  1876,  several  pay- 
ments having  been  made  thereon  in  the  meantime,  plaintiff  in 
error  sold  the  note  for  its  then  face  value  to  defendant  in  error. 
At  the  time  of  such  sale  he  indorsed  it,  "Without  recourse. — W. 
L.  Challiss."  McCrum  sued  on  the  note.  Ege  plead  usury.  The 
plea  was  sustained,  and  McCrum  recovered  $229.90,  less  than  the 
face  value  of  the  note,  for  which  sum  he  brought  this  action.  A 
demurrer  to  the  petition  was  overruled,  and  this  ruling  is  now 
presented  for  review.  Can  the  action  be  sustained?  Of  course 
no  action  will  lie  on  the  indorsement,  for  by  his  written  contract 
Challiss  expressly  declines  to  assume  the  liabilities  of  an  indorser. 
If  sustainable  at  all,  it  must  be  as  against  him  as  a  vendor^and 
not  as  an  indorser,  and  upon  the  doctrine  of  an  implied  warranty. 
The  theory  of  the  defendant  in  error  is,  that  every  vendor  of  a  bill, 
bond  or  note  impliedly  warrants  that  it  is  what  it  purports  on 
its  face  to  be — the  legal  obligation  of  the  parties  whose  names 
appear  on  the  instrument ;  and  that  the  character  of  the  indorse- 
ment or  the  lack  of  an  indorsement  in  no  manner  affects  this 
implied  warranty.  On  the  other  hand,  the  counsel  for  plaintiff 
in  error  lays  down  the  broad  proposition  that  "there  is  no 
such  thing  as  implied  warranty  in  the  sale  of  chattels ;"  and  that, 
in  the  absence  of  express  warranty,  the  maxim  caveat  emptor  is 
of  universal  application.  Tt  is  clear  that  the  character  of  the 
indorsement  cuts  no  figure  in  the  question ;  as  stated,  no  action 


468  Contract  of  the  Vendor 

will  lie  on  it.  But  further,  the  restriction  is  only  as  to  his  liability 
as  indorser,  and  in  no  manner  affects  his  relation  to  the  paper  as 
vendor.  An  unqualTF«rnTd~brsement  is  the  assumption  of  a  con- 
ditional liability.  The  indorser  becomes  a  new  drawer,  and  is 
liable  on  the  default  of  the  drawee.  "Without  recourse."  does 
away  with  this  conditional  liability.  It  leaves  the  indorsement 
simply  as  a  transfer  of  title,  and  the  indorser  liable  only  as  vejv 
d£r;  yet  it  leaves  him  a  vendor,  and  divests  him  of  none  of  the 
liabilities  of  a  vendor.  It  makes  the  transaction  the  equivalent 
of  a  delivery  of  paper  payable  to  bearer,  and  transferable  bv 
delivery.  (H  annum  v.  Richardson,  48  VT.~5o8)T"  Independent, 
therefore,  of  any  matter  of  indorsement,  what  implied  warranty 
is  there  in  the  transfer  of  a  promissory  note?  Two  things  are 
clear  under  the  authorities :  First,  that  there  is  an  implied  war- 
ranty  of  the  genuineness  of  the  signatures;  and  second,  that  there 
is  no  warranty  ot  the  solvency  of  the  parties.  It  is  unnecessary 
to  more  than  refer  tcTa  few  of  the  authorities  upon  these  proposi- 
tions: Byles  on  Bills,  pp.  123,  125,  and  cases  in  notes;  Jones  v. 
Ryde,  5  Taunt.  488 ;  Gurney  v.  Womersley,  4  El.  &  Bl.  132 ;  Gom- 
pertz  v.  Bartlett,  24  Eng.  Law  &  Eq.  156;  Terry  v.  Bissell,  26 
Conn.  2T,;  Mcrriam  v.  Wplcott,  3  Allen,  259;  Aldrich  v.  Jackson, 
5  R.  I.  218;  Lobdcll  v.  Baker,  3  Mete.  469;  1  Addison  on  Cont., 
p.  152 ;  Ellis  v.  Wild,  6  Mass.  321 ;  Eagle  Bank  v.  Smith,  5  Conn. 
71  ;  Shaver  v.  Ehlc,  16  Johns.  201  ;  Dumont  v.  Williamson,  18 
Ohio  St.  515;  2  Parsons  on  Notes  and  Bills,  ch.  2,  §2.  But  in 
the  case  at  bar,  the  signature  of  the  maker  was  genuine.  The 
objection  is,  that  it  was  never  his  legal  obligation  to  the  full 
amount  for  which  it  purported  to  be.  How  far  is  there  any 
implied  warranty  in  this  respect?  A  reference  to  some  of  the 
leading  cases  will  throw  light  upon  this  question. 

In  Thrall  v.  Newell,  19  Vt.  203,  it  appeared  that  one  of  the 
makers  of  a  note  was  insane.  The  vendor  made  a  written  assign- 
ment, in  which  was  a  description  of  the  note,  and  the  court  con- 
strued this  as  an  express  warranty  that  the  instrument  was  the 
legal  obligation  of  the  apparent  makers,  and  one  being  incapable 
of  contracting,  gave  judgment  against  the  vendor  on  account  of 
this  breach  for  the  amount  received  by  him.  While  the  judgment 
of  the  court  is  rested  upon  the  fact  of  an  express  warranty,  the 
judge  who  writes  the  opinion  expresses  his  individual  conviction 
that  the  same  result  would  follow  on  a  mere  transfer  without  any 
express  warranty,  and  quotes  approvingly  an  extract  from  Rand's 
edition  of  Long  on  Sales,  that  "there  is  an  implied  warranty  in, 
every  sale  that  the  thing  sold  is  that  for  which  it  was  sold." 


L; 


(Jhalliss  v.  McCrum  469 

In  Lobdell  v.  Baker,  3  Mete.  469,  it  appeared  that  the  owner 
of  a  note  procured  the  indorsement  of  a  minor,  and  then  put  the 
paper  in  circulation.  He  was  held  liable  to  a  subsequent  holder. 
Chief  Justice  Shaw,  delivering  the  opinion  of  the  court,  says: 

''Whoever  takes  a  negotiable  security  is  understood  to  ascer- 
tain for  himself  the  ability  of  the  contracting  parties,  but  he 
has  a  legal  right  to  believe,  without  inquiring,  that  he  has  the 
legal  obligation  of  the  contracting  parties  appearing  on  the  bill 
or  note.  Unexplained,  the  purchaser  of  such  a  note  has  a  right 
to  believe,  upon  the  faith  of  the  security  itself,  that  it  is  indorsed 
by  one  capable  of  binding  himself  by  the  contract  which  an 
indorsement  by  law  imports." 

In  H annum  v.  Richardson,  48  Vt.  508,  a  note  was  given\<~s>_>v^njv^. 
for  liquor   sold   in  violation   of  law,   and   was  by   statute   void.  I  ft/0L-<iu€iyW^ 
Defendant  knew  its  invalidity,  transferred  it  by  an  indorsement  J  c_4y_^_SL  . 
without  recourse,  and  he  was  held  liable  to  his  vendee.  • 

In  Delaware  Bank  v.  Jarvis,  20  N.  Y.  226,  a  usurious  note 
was  sold,  and  the  vendor  was  adjudged  liable,  not  merely  for  the 
money  received  by  him,  but  also  the  costs  paid  by  his  vendee  in 
a  suit  against  the  makers  of  the  note.  In  the  opinion,  Mr.  Justice 
Comstock  uses  this  language  : 

'"The  authorities  state  the  doctrine,  in  general  terms  that  the 
vendor  of  a  chose  in  action,  in  the  absence  of  express  stipulation, 
impliedly  warrants  its  legal  soundness  and  validity.  In  peculiar 
cirumstances  and  relations,  the  law  may  not  impute  to  him  an 
engagement  of  this  sort.  But  if  there  are  exceptions,  they  cer- 
tainly do  not  exist  where  the  invalidity  of  the  debt  or  security  sold 
arises  out  of  the  vendor's  own  dealing  with  or  relation  to  it.  In 
this  case,  the  defendant  held  a  promissory  note  which  was  void, 
because  he  had  himself  taken  it  in  violation  of  the  statutes  of 
usury.  When  he  sold  the  note  to  the  plaintiffs  and  received  the 
cash 'therefor,  by  that  very  act  he  affirmed  in  judgment  of  law 
that  the  instrument  was  unattainted  so  far  at  least  as  he  had  been 
connected  with  its  origin." 

In  Young  v.  Cole,  3  Bingham  (N.  C),  724,  certain  bonds 
were  sold  as  Guatemala  bonds,  which  turned  out  afterward  to  be 
lacking  the  requisite  seal,  and  the  vendor,  though  ignorant  of 
the  defect  and  innocent  of  wrong,  was  compelled  to  refund  the 
money.  The  thing  in  fact  sold  was  .not  the  thing  supposed  and 
intended  to  be  sold. 

In  Gompertz  v.  Bartlett,  24  Eng.  Law  and  Eq.  156,  the 
plaintiff  discounted  for  the  defendant  an  unstamped  bill,  purport- 


470  Contract  of  the  Vendor 

ing  on  its  face  to  have  been  a  foreign  bill,  drawn  at  Sierra  Leone 
and  accepted  in  London,  but  which  was  in  fact  drawn  in  London. 
I  i  actually  a  foreign  bill,  it  required  no  stamp,  and  was  valid ;  but 
being  an  inland  bill,  it  required  a  stamp  to  make  it  a  valid  bill 
in  a  court  of  law.  The  acceptance  was  genuine,  and  the  acceptor 
had  previously  paid  similar  bills.  But  the  acceptor  becoming 
bankrupt,  the  commissioner  refused  to  allow  it  against  his  estate 
because  not  stamped.  Thereupon  plaintiff,  who  had  sold  the  bill, 
and  been  compelled  to  take  it  up,  brought  his  action  to  recover 
the  price  he  had  paid  for  it,  and  the  action  was  sustained.  Lord 
Campbell,  before  whom  the  case  had  been  tried,  and  who  then 
held  adversely  to  the  plaintiff,  said : 

"I  then  thought  that  the  rule  caveat  emptor  applied ;  but  after 
hearing  the  argument  and  the  authorities  cited,  I  think  the  action 
is  maintainable,  and  upon  this  ground  :  that  the  article  sold  did 
not  answer  the  description  under  which  it  was  sold.  If  it  had 
been  a  foreign  bill,  and  there  had  been  any  secret  defect,  the 
risk  would  have  been  that  of  the  purchaser ;  but  here  it  must  be 
taken  that  the  bill  was  sold  as  and  for  that  which  it  purported  to 
be.  On  the  face  of  the  bill  it  purported  to  be  drawn  at  Sierra 
Leone,  and  it  was  sold  as  answering  the  description  of  that  which 
on  its  face  it  purported  to  be.  That  amounted  to  a  warranty  that 
it  really  was  of  that  description." 

In  Ticonic  Bank  v.  Smiley,  27  Me.  225,  an  overdue  note  was 
transferred  with  this  indorsement,  "Indorser  not  holden ;"  yet 
it  was  decided  that  the  indorser  was  liable  to  his  vendee  for 
any  payment  made  on  the  note  before  the  transfer,  or  any  set-off 
existing  against  it  of  which  the  note  gave  no  indication  and  the 
vendor  no  information. 

In  Snyder  v.  Reno,  38  Iowa.  329,  it  was  held  that  there  is 
an  implied  warranty  that  there  has  been  no  material  alteration  in 
the  paper  since  its  execution.  The  court  says:  "We  have  no 
doubt  that  there  is  an  implied  warranty  of  the  transferrer  that 
there  is  no  defect  in  the  instrument,  as  well  as  that  the  signature 
of  the  maker  is  genuine."  See,  also,  Blethcn  v.  hovering,  58  Me. 
437 ;  Ogden  v.  Blydenburgh,  1  Hilton,  182  ;  Fake  v.  Smith,  2  Abb. 
(N.  Y.)  App.  76;  2  Parsons  on  Notes  and  Bills,  ch.  2,  §2,  and 
cases  in  notes ;  Terry  v.  BisscII,  26  Conn.  23 ;  1  Daniel  on  Neg. 
Instruments.  §670.  In  this,  the  author  thus  states  the  law: 
"When  the  indorsement  is  without  recourse,  the  indorser  specially 
declines  to  assume  any  responsibility  as  a  party  to  the  bill  or  note  ; 
but  by  the  very  act  of  transferring  it,  he  engages  that  it  is  what  it 


Littauer  v.  Goldman  471 

purports  to  be — the  valid  obligation  of  those  whose  names  are 
upon  it.  He  is  like  a  drawer  who  draws  without  recourse;  but 
who  is  nevertheless  liable  if  he  draws  upon  a  fictitious  party,  or 
one  without  funds.  And,  therefore,  the  holder  may  recover,, 
against  the  indorser  without  recourse,  ( I )  if  any  of  the  prior  sig- 
natures were  not  genuine ;  or.  (2)  if  the  note  was  invalid  between 
the  original  parties,  because  of  the  _want,  or  illegality,  of  the  coth 
sideration;  or,  (3"]  if  any  prior  party  was  incompetent;  or  (4) 
the  indorser  was  without  title." 

These  authorities  fully  sustain  the  ruling  of  the  district  court. 
The  note  was  not  the  legal  obligation  of  the  maker  to  the  full 
amount.  As  to  the  usurious  portion,  it  was  as  it  were  no  note. 
This  was  a  defect  in  the  very  inception  of  the  note.  It  was 
known  to  the  vendor  and  arose  out  of  his  own  dealings  in_the 
matter.  By  all  these  authorities  there  is  an  implied  warranty 
against  such  a  defect,  and  the  vendor  is  liable  for  a  breach  thereof. 

The  suggestion  of  counsel  that  the  change  in  the  usury  law, 
by  the  legislation  of  1872,  affected  the  right  of  recovery  upon  the 
note,  has  been  already  decided  adversely,  in  the  case  of  Jcnncss 
v.  Cutler,  12  Kas.  500. 

The  judgment  will  be  affirmed. 

All  the  justices  concurring.  %r^rv    <^L&/\a/v 


^    Littauer  v.  Goldman  (1878),  72  N.  Y.  506. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  first  judicial  department,  entered  upon  an  order 
affirming  an  order  of  Special  Term,  which  overruled  a  demurrer 
to  the  complaint  herein.     (Reported  below,  9  Hun,  231). 

The  complaint  alleged,  in  substance,  that  defendant  sold  and 
transferred  by  delivery  to  plaintiff,  for  valuable  consideration,  a 
promissory  note,  which  was  void  for  usury  in  its  inception  ;  that 
plaintiff  sued  the  makers,  who  interposed  the  defense  of  usury; 
that  plaintiff  notified  defendant  of  the  bringing  of  the  action  and 
of  the  defense  set  up,  and  requested  him  to  take  charge  of  the 
prosecution  of  said  action  and  that  he  would  be  held  liable  in 
case  the  defense  was  sustained ;  that  plaintiff  was  beaten  in  said 
action  and  a  judgment  for  costs  rendered  against  him.  It  was 
not  alleged  that  defendant  had  knowledge  of  the  defect  or  that 


472 


Contract  of  the  Vendor 


any  express  representation  or  guaranty  was  made.  The  defendant 
demurred  that  the  complaint  did  not  state  facts  sufficient  to  con- 
stitute a  cause  of  action. 

E.  H.  Bcnn,  for  appellant. 

B.  IV.  Huntington,  for  respondent. 

Miller,  J.  The  right  of  the  plaintiff  to  maintain  this  action 
rests  upon  the  ground  that  the  note  in  question  which  was  sold 
and  transferred  by  the  defendant  to  the  plaintiff  was  invalid  and 
void,  by  reason  of  its  original  usurious  consideration.  It  is 
alleged  that,  being  in  violation  of  the  statute  against  usury,  it 
was  no  note,  and  by  implication  of  law  the  defendant  did  warrant 
and  undertake  that  the  same  was  not  usurious  or  illegal,  but  a 
valid  and  legal  note.  The  complaint  does  not  allege  that  the 
defendant  had  any  knowledge  of  the  usury  or  was  a  party  to  the 
same,  but  states  that  the  seller  by  the  act  of  transfer  for  a  valuable 
consideration,  impliedly  warranted  that  the  paper  was  genuine 
and  all  that  it  purports  to  be  upon  its  face,  and  incurred  an  obli- 
gation by  the  sale  to  make  the  paper  good,  although  he  did  not 
indorse  or  guaranty  the  same.  The  question  whether  an  action 
will  lie  for  the  loss  sustained  by  the  plaintiff  by  reason  of  the  note 
being  usurious,  and  the  recovery  of  the  amount  thereof  thereby 
defeated,  has  never  arisen  under  the  precise  circumstances  pre- 
sented in  this  case,  and  demands  an  examination  of  the  principle 
applicable  to  the  contract  entered  into  upon  the  sale  of  paper  of 
this  description,  and  of  the  authorities  bearing  upon  the  subject. 
The  rule  is  well-settled  that  generally  one  who  transfers  paper 
by  delivery  only,  incurs  none  of  the  liabilities  which  attach  to  an 
indorser,  for  the  reason  that  the  irresistible  inference  is,  that  if  he 
transfers  it  and  it  is  received  without  his  indorsement,  that  such 
liabilities  did  not  enter  into  the  bargain  or  the  intention  of  the 
partes.  This  rule,  however,  is  not  without  exception,  and  the 
transferrer  of  notes  or  bills  by  delivery  wjrrants_jhelgen^ineness 
TIF  the  signatures,  and  that  the  title  is  what  it  purports  to  be.  If 
the  paper  is  forged  the  transferee  is  liable  upon  the  original  con- 
sideration which  has  never  been  extinguished  by  the  sale.  (2 
Parsons  on  Contracts,  37,  38).  So,  also,  it  is  laid  down  by  the 
same  author  that  the  vendor  without  indorsement  warrants  that 
the  paper  is  of  the  kind  and  description  that  it  purports  to  be,  and 
there  is  an  implied  warranty  that  the  parties  to  the  paper  are 
under  no  incapacity  to  contract,  as  from  infancy  or  marriage  or 
other  disability,  and  the  assignment  of  a  bill  or  note  for  a  valuable 
consideration  raises  an   implied  warranty  that  the  assignor  has 


Littauer  v.  Goldman  473 

done  nothing,  and  will  do  nothing  to  prevent  the  assignee  from 
collecting  it.  The  reason  given  as  to  forged  paper  is  that  it  is 
nothing,  and  the  one  who  has  transferred  it  has  transferred  noth- 
ing, and  is  therefore  liable.  (Id.,  39,  40).  The  question  whether 
paper  tainted  with  usury,  which  is  transferred  by  the  holder  with- 
out knowledge  of  this  defect,  can  be  regarded  as  within  the  prin- 
ciple of  the  exceptions  stated,  is  not  free  from  difficulty,  and  at 
first  view  there  appears  to  be  some  ground  for  claiming  that  a 
note  made  in  violation  of  a  statute  which  declares  usury  to  be  a 
misdemeanor,  and  that  all  paper  of  this  kind  shall  be  void,  should 
stand  on  the  same  footing  as  forged  or  other  paper,  which  is 
excepted  from  the  general  rule. 

Although  the  reported  cases  do  not  decide  the  exact  point, 
an  examination  of  some  of  the  leading  authorities  tends  to  throw 
some  light  on  the  subject.  In  Marvin,  Prest.  of  the  Delaware  Bank 
v.  Jarvis  (20  N.  Y.,  226),  a  note  was  transferred  to  the  plaintiff 
which  had  been  taken  at  a  usurious  premium  by  the  defendant 
and  the  avails  received  by  him.  Upon  being  sued,  the  defense  of 
usury  was  interposed,  which  was  successful,  and  the  bank  sued 
the  defendant  to  recover  the  amount  and  costs  of  prosecuting  the 
note.  It  was  held  that  one  who  transfers  a  chose  in  action  \ 
impliedly  warrants  that  there  is  no  legal  defense  to  its  collection 
arising  out  of  his  own  connection  with  its  origin,  and  that  the  y 
party  accepting  the  transfer  is  at  liberty  to  act  upon  the  implied 
assertion  of  the  validity  of  the  paper,  and  to  bring  an  action  for  its 
collection  ;  and  when  defeated  to  recover  the  costs  incurred  by  him 
from  his  assignor.  The  opinion  lays  down  the  rule  that  the  author- 
ities hold  the  doctrine  in  general  terms  that  the  vendee  [vendor?] 
of  a  chose  in  action,  in  the  absence  of  express  stipulations,  impliedly 
warrants  its  legal  soundness  and  validity,  and  that  exceptions  do 
not  exist  when  the  invalidity  of  the  debt  or  security  sold  arises 
out  of  the  vendor's  dealing  in  relation  to  it.  It  is  also  said  that 
the  act  of  transferring  the  note  was  the  strongest  possible  asser- 
tion that  no  legal  defense  existed.  The  defendant  in  the  case 
cited  had  knowledge  of  the  usury,  which  was  not  the  fact  here, 
and  hence  it  differs  from  the  case  at  bar,  and  is  not  decisive 
of  the  question  ;  but  the  opinion  is  very  strong  in  upholding  the 
general  doctrine  referred  to  where  there  is  a  radical  defect  in  the 
note. 

In  Webb  v.  Odell  (49  N.  Y.,  583),  a  recovery  for  the  pur- 
chase-price was  upheld  where  notes  were  sold  for  less  than  their 
face,  upon  a  representation  that  they  were  business  paper,  when. 
in  fact,  thev  were  accommodation  notes,  and  thus  usurious  and  void 


474  Contract  of  the  Vendor 

in  the  hands  of  the  vendee.  The  decision  is  placed  upon  the  ground 
that  the  thing  sold  differed  in  substance  from  what  the  purchaser 
was  led  by  the  vendee  [vendor?]  to  believe  he  was  buying,  and  the 
difference  was  so  substantial  and  essential  in  its  character  as  to 
amount  to  a  failure  of  consideration.  The  representation  that 
the  notes  were  business  paper  was  an  important  fact,  and  hence 
the  decision  does  not  exactly  cover  a  case  where  the  party  trans- 
ferring had  no  knowledge  of  the  true  character  of  the  paper.  In 
Ross  v.  Terry  (63  N.  Y.,  613),  the  defendant  sold  a  bond  and 
mortgage  to  the  plaintiff,  which  was  usurious  and  void.  The 
defendant  was  personally  concerned  in  the  making  of  them,  and  in 
the  unlawful  acts  which  vitiated  them,  and  it  was  held  that  there 
was  an  implied  warranty  of  the  validity  of  the  securities.  It  will 
be  observed  that  here,  also,  the  defendant  had  knowledge  of  the 
usury,  and  hence  the  case  is  not  directly  in  point.  In  Take  v. 
Smith  (7  Abb.  [N.  S.],  106),  the  defendants,  who  sold  a  usurious 
note  to  the  plaintiff,  were  held  liable  upon  an  implied  warranty 
by  defendants,  on  the  sale  of  the  note,  that  there  was  no  legal 
defense  to  an  action  upon  it,  but  it  appeared  that  the  defendants 
were  privy  to  the  consideration  of  the  note,  and  the  facts  and 
circumstances  under  which  it  was  given  and  transferred. 

The  foregoing  constitute  the  principal  cases  in  this  State 
which  have  a  direct  bearing  upon  the  question  arising  where  the 
notes  transferred  were  tainted  with  usury.  In  the  cases  of  Whit- 
ney v.  National  Bank  of  Potsdam  (45  N.  Y.,  305),  and  Bell  v. 
Pagg  (60  N.  Y.,  530),  the  notes  were  forged,  and  the  implied 
warranty  related  to  the  genuineness  of  the  signature,  which,  as  we 
have  seen,  is  expressly  provided  for  in  the  elementary  works.  In 
the  case  of  Gemport  v.  Bartlctt  (75  Eng.  C.  L.  R.,  849),  an 
unstamped  bill  of  exchange,  indorsed  in  blank  purporting  to  be 
a  foreign  bill,  was  sold  without  recourse  by  the  holder.  It  was 
shown  to  have  been  drawn  in  the  country  where  the  parties 
resided,  and  was  for  that  reason  unavailable  for  want  of  a  stamp, 
and  it  was  held  that  the  article  did  not  answer  the  description  of 
that  which  was  sold,  viz. :  a  foreign  bill,  and  hence  the  purchaser 
could  recover  back  the  price  from  the  vendor.  This  case  sustains 
the  doctrine  that  the  money  might  be  recovered  as  paid  under  a 
mistake  of  fact,  which  seems  to  have  been  a  mutual  mistake,  and 
the  whole  case  appears  to  have  been  disposed  of  upon  the  ground 
that  the  article  did  not  answer  the  description.  There  is  some 
analogy  between  the  case  last  cited  and  the  one  at  bar,  for  here 
the  note  on  its  face  purported  to  be  valid,  and  was  only  shown  not 
to  be  by  proof  of  extrinsic  facts,  which  affected  the  original  con- 


Littauer  v.  Goldman  475 

sidcration.  The  difference  however  is,  that  in  the  case  last  cited 
the  purchaser  contracted  for  a  foreign  bill  which  required  no 
stamp,  and  did  not  receive  what  he  was  entitled  to,  while  here 
there  was  a  secret  defect  unknown  to  both  parties,  and  not  pro- 
vided for ;  and  as  was  said  by  the  Lord  Chief  Justice  in  Gemport 
v.  Bartlett:  "If  it  really  had  been  a  foreign  bill,  any  secret  defect 
would  have  been  at  the  risk  of  the  purchaser."  From  the  author- 
ities  to  which  we  have  adverted,  it  appears  that  in  every  case 
where  usury  was  involved  there  was  knowledge  of  its  existence  on 
the  part  of  the  person  who  held  and  transferred  the  note!  It  is 
true  that  in  Delaware  Bank  v.  Jarvis  (supra),  it  is  remarked  by 
the  judge  that  he  does  not  consider  it  a  material  circumstance  that 
the  defendant  had  knowledge  that  the  note  had  not  been  nego- 
tiated prior  to  the  time  when  it  was  received,  and  as  we  have  seen 
lays  down  the  broad  rule  that,  in  any  case  where  there  is  not  an 
express  agreement,  the  vendor  of  a  chose  in  action  warrants  not 
only  the  title,  but  the  soundness  and  validity  of  the  note.  The 
opinion  of  the  learned  judge  is  entitled  to  great  respect;  but,  as 
the  facts  show  it  was  not  necessary  to  go  to  this  extent  to  sustain 
the  decision  made,  it  is  not  entirely  controlling. 

It  is  of  grave  importance  whether  a  scienter  is  material  for 
the  purpose  of  upholding  an  implied  warranty  in  a  case  of  this 
kind.  In  Hoe  v.  Sanborn  (21  N.  Y.,  552),  Selden,  J.,  lays  down 
the  rule,  "that  whenever  an  article  sold  has  some  latent  defect, 
which  is  known  to  the  seller,  and  not  to  the  purchaser,  the  former 
is  liable  for  this  defect  if  he  fails  to  discover  his  knowledge  on 
the  subject  at  the  time  of  the  sale."  He  proceeds  to  state  that 
where  knowledge  is  proved  by  direct  evidence,  the  responsibility 
rests  upon  the  ground  of  fraud ;  but  where  the  probability  of 
knowledge  is  so  strong  that  courts  will  presume  its  existence  with- 
out proof,  the  vendor  is  held  responsible  upon  an  implied  war- 
ranty ;  and  the  difference  between  the  two  cases  is,  that  in  the  one, 
the  scienter  is  actually  proved,  in  the  other  it  is  presumed.  A 
scienter  is,  therefore,  essential  to  establish  an  implied  warranty ; 
and  as  we  have  seen,  the  cases  to  which  we  have  referred  all  show- 
knowledge  on  the  part  of  the  vendor.  The  cases  which  are  cited  to 
sustain  the  doctrine  that  the  scienter  is  immaterial  where  there  is 
a  warranty  either  express  or  implied  do  not  go  to  that  extent. 

In  Evcrston  v.  Miles  (6  J.  R.,  138).  the  action  was  assumpsit 
for  a  breach  of  warranty  on  the  sale  of  a  horse,  and  the  judge  upon 
the  trial  rejected  evidence  to  show  that  the  representations  proved 
were  false,  and  decided  that  the  plaintiff  must  show  an  express 
warranty,  otherwise  they  could  not  recover  upon  the  declaration. 


476  Contract  of  the  Vendor 

This  ruling  was  sustained  by  the  higher  court,  and  it  was  said 
that  there  is  no  case  which  permits  a  plaintiff  to  establish  deceit 
and  fraud,  when  he  declares  only  in  assumpsit  on  a  warranty 
express  or  implied.  The  question  presented  related  to  the  form  of 
the  complaint,  and  has  no  application  to  the  case  now  considered 
where  the  point  is,  what  constitutes  an  implied  warranty  upon  the 
sale  of  a  chose  in  action.  In  Ross  v.  Mather  (47  Barb.,  582),  the 
action  was  for  a  false  warranty  in  the  sale  of  a  horse,  and  it  was 
held  it  was  unnecessary  for  the  plaintiff  to  make  proof  of  the 
scienter,  but  proof  of  the  warranty  was  sufficient,  and  whether  the 
defendant  knew  the  warranty  was  false  at  the  time  of  making  it 
was  of  no  importance.  The  warranty  in  the  case  cited  was  express 
and  of  course  when  proved  made  out  a  case.  Here  the  question 
is,  where  there  is  no  express  warranty  and  the  evidence  does  not 
show  knowledge  or  deceit,  whether  any  implied  warranty  is  made 
out  and  the  cases  cited  furnish.no  light  on  that  subject.  In 
Williamson  v.  Allison  (2  East,  446) ,  the  warranty  was  proved  and 
the  same  rule  was  laid  down.  The  reason  of  the  rule  was  stated 
by  Lord  Ellenborough  to  be  that  the  plaintiff  was  equally  entitled 
to  recover  on  the  same  proof,  by  striking  out  the  whole  averment 
of  a  scienter.  This  is  apparent,  and  hence  the  rule  last  stated  has 
no  application  to  a  case  where  the  warranty  is  necessarily  depen- 
dent upon  proof  of  knowledge.  Without  proof  of  such  knowledge 
no  warranty  is  made  out,  for  there  is  only_the_ naked  fact  that  the 
plaintiff  purchased  the  notes,  and  as  we  have  seen  there  is  no 
reported  casewhich  holds  that  where  such  purchase  is  made  with- 
out_actual  knowledge  by  the  defendant  that  an  implied  warranty 
is  established. 

It  is  true  that  some  of  the  cases  to  which  we  have  referred, 
hold  that  express  representations  are  not  necessary  to  establish 
a  case  and  fix  a  liability,  but  in  all  of  those  where  the  notes  were 
affected  bv  usury  the  evidence  showed  that  such  fact  was  known 
to  the  defendant.  The  case  of  a  forged  instrument,  as  we  have 
seen,  rests  upon  a  different  principle,  viz.:  That  the  note  is  no 
note,  and  hence  none  of  the  cases  cited  aid  the  plaintiff!  The  doc- 
TrTne  that  an  action"can  be  maintained  to  recover  back  the  pur- 
chase-price paid  under  a  contract  of  sale  of  personal  property, 
without  proof  of  warranty  or  fraud,  where,  upon  delivery  of  the 
property,  it  proves  utterly  valueless,  and  where  an  offer  to  return 
has  been  made  and  refused,  which  is  held  in  Stone  v.  Frost  (61 
X.  Vr.,  614),  is  scarcely  applicable  to  negotiable  paper  which  must 
be  governed  by  entirely  a  different  rule.  In  the  latter  case,  where 
the  transfer  is  made  without  indorsement,  it  is  not  unreasonable 


Littauer  v.  Goldman  477 

to  suppose  that  certain  liabilities  did  not  enter  into  the  consider- 
ation of  the  transfer,  and  had  it  been  so  intended  some  agreement 
would  have  been  made  in  regard  to  the  same. 

The  authorities  cited  in  Parsons  on  Contracts  (supra),  in 
the  note  to  uphold  the  rule  stated  that  there  is  an  implied  war- 
ranty that  the  parties  are  under  no  incapacity  to  contract,  do  not 
sustain  the  doctrine  laid  down  in  the  text.  In  Lobdcll  v.  Baker 
(i  Met.,  193 ;  id.,  469),  the  note  was  indorsed  by  a  minor,  and  the 
action  was  for  deceit  in  procuring  the  minor  to  indorse  it,  and 
then  putting  it  in  circulation.  Knowledge  was  a  necessary  ingre- 
dient of  the  plaintiff's  action,  and  hence  the  case  cited  is  not  in 
point.  In  Thrall  v.  Newell  (19  Vt.,  202),  where  the  note  was 
invalid,  as  one  of  the  signers  of  the  same  was  insane,  and  had 
successfully  defended  on  that  ground,  the  case  turned  somewhat 
upon  the  construction  to  be  given  to  a  written  assignment  to  the 
plaintiff,  which  it  was  held  must  be  construed  as  an  express  war- 
ranty on  the  part  of  the  defendant  that  it  was  a  valid  note,  and 
that  the  signers  were  of  sufficient  capacity  to  contract,  and 
although,  in  the  opinion,  the  judge  was  inclined  to  think  that  there 
was  a  warranty  implied  by  law  from  the  sale  of  the  note,  that 
question  was  not  in  the  case;  nor  do  the  text-books  sustain  the 
doctrine  as  stated  in  Parsons  in  reference  to  incapacity. 

In  Story  on  Promissory  Notes  (§118),  it  is  said  that  the 
holder  warrants  by  implication,  unless  otherwise  agreed  that  he  is 
the  lawful  holder  and  has  title  ;  that  the  instrument  is  genuine,  and 
not  forged  or  fictitious ;  that  he  has  no  knowledge  of  facts  which 
prove  the  instrument,  if  originally  valid,  to  be  worthless,  either  by 
a  failure  of  the  maker,  or  by  its  being  paid,  or  otherwise  to  have 
become  void  or  defunct.  , 

In  Chitty  on  Bills  (p.  245),  it  is  laid  down  that  where  a  per- 
son obtains  money  on  a  note,  and  it  turns  out  to  be  forged,  he 
is  liable  to  refund  the  money  to  the  party  from  whom  he  received 
it,  on  the  ground  that  there  is,  in  general,  an  implied  warranty  that 
the  instrument  is  genuine.    Again,  at  page  2477Tt  is  said :     "lTjT_ 
man  assign  a  bill  for  any  sufficient  consideration,  knowing  it  to 
oe  of  no  value,  and  the  assignee  be~not  aware  of  the  fact,  the 
formerwould.  in  all  cases  be  compellable  to  repay  the  money  he 
had  received.       It  is  knowledge  of  the  defect  wjudi^enders  the 
party  liable  for  a  note  \yJucjTjs~oTno  vajue.  and  this  rule  appTjeT 
folfm)te  "which  is  tainTeTTwUh^surx     In  terns  v.  H arris on^T 
ET8TE.,  757),  the  same  rule  was  laicTcTown.    In  the  case  last  cited 
the  holder  of  a  bill  of  exchange  desired  to  get  it  discounted,  but 
refused   to  indorse  it,  and   delivered    it   to  another   party,   who 


478  Contract  of  the  Vendor 

passed  it  oft"  for  that  purpose  to  a  third  party,  informing  him  to 
whom  it  belonged,  and  such  last-named  party  disposed  of  it  by 
indorsing  it,  being  prevailed  upon  to  do  so  by  the  person  who 
delivered  it  to  him.  Although  the  original  owner  afterward  prom- 
ised to  pay  the  bill,  it  was  held  that  such  promise  cannot  support 
an  action  brought  against  him  by  the  indorser.  Lord  Kenyon 
>;i\  s :  "It  is  extremely  clear  that  if  the  holder  of  a  bill  sends  it 
to  market  without  indorsing  his  name,  neither  morality  nor  the 
laws  of  this  country  will  compel  him  to  refund  the  money  for 
which  he  sold  it,  if  he  did  not  know  at  the  time  that  it  was  not  a 
good  bill.  If  he  knew  the  bill  to  be  bad,  it  would  be  like  sending 
out  a  counterfeit  into  circulation  to  impose  upon  the  world  instead 
of  current  coin.  In  this  case,  if  the  defendant  had  known  the  bill 
to  be  bad,  there  is  no  doubt  that  he  would  have  been  obliged 
to  refund  the  money."  (See,  also,  Byles  on  Bills,  158,  159;  Story 
on  Bills,  §  111  ;  Edwards  on  Bills,  191). 

In  Lambert  v.  Heath  (15  M.  &  W.,  485),  the  defendant,  a 
share  broker,  bought  for  the  plaintiff  script  certificates,  which 
were  sold  in  the  share  market,  at  a  premium,  as  "Kentish  Coast 
Railway  Script,"  and  were  signed  by  the  secretary  of  the  railway 
company.  The  genuineness  of  the  script  was  denied  afterwards 
by  the  directors,  who  alleged  that  it  was  issued  without  authority. 
In  an  action  brought  to  recover  back  the  price  on  the  ground  that 
it  was  not  genuine,  it  was  held  that  it  was  a  proper  question  for 
the  jury  whether  what  the  defendant  intended  to  buy  was  that 
which  was  sold  in  the  market  as  such  script.  Alderson,  B.,  said : 
"It  appears  that  it  was  signed  by  the  secretary  of  the  company ; 
and  if  this  was  the  only  Kentish  railway  script  in  the  market,  as 
appears  to  have  been  the  case,  and  one  person  chooses  to  sell  and 
another  to  buy  that,  then  the  latter  has  got  all  he  contracted  to 
buy."  The  script  was  of  no  value,  because  it  was  not  genuine,  as 
the  note  here  is  worthless,  by  reason  of  the  usury.  The  same 
principle  is  applicable  in  both  cases,  and  the  plaintiff  cannot 
recover  unless  it  is  made  to  appear  that  the  plaintiff  intended  to 
purchase  and  the  defendant  to  sell  the  note  without  the  alleged 
defect. 

In  Hall  v.  Condcr  (26  L.  J.  [C.  P.],  138),  an  action  was 
brought  to  recover  money  agreed  to  be  paid  upon  the  sale  of  an 
interest  in  a  patent  right.  One  of  the  pleas  interposed  to  the 
declaration  was,  that  the  invention  was  not  new  in  England,  and 
was  worthless,  and  the  plaintiff  was  not  the  first  inventor.  To 
that  there  was  a  demurrer,  and  it  was  held  that  there  was  in  the 
agreement  no  warranty,  express  or  implied,  that  the  patent  was 


Littauer  v.  Goldman  479 

indefeasible,  and  no  fraud  being  alleged,  and  the  defendant  having 
the  same  means  of  knowledge  as  to  the  novelty  and  value  of  the 
patent  as  the  plaintiff,  the  plea  was  bad.  The  rule  is  laid  down  by 
Caswell,  J.,  that  on  the  sale  of  a  known  ascertained  article,  there 
is  no  implied  warranty  of  its  quality. 

The  examination  we  have  made  of  the  question  shows  that 
the  law  in  regard  to  the  transfer  of  negotiable  bills  of  exchange 
and  promissory  notes,  as  laid  down  for  a  century  or  more,  only 
excepts  two  cases  as  coming  wj.thin  the  doctrine  of  an  implied 
warnmty,  viz. :  a  warranty  of  title,  and  that  the  instrument  is 
genuine  and  not  forged.  There  is  no  precedent  and  not  a  single 
reported  case  in  the  books'in  favor  of  the  doctrine  that  whefe~a 
promis sory  note  is  infected~with  usury,  and  that  fact  is  unknown 
tolhe  party  who  transferred  it.  that  is  an  implied  warranty  oijhg' 
valulit}  of  the  note.  To  uphold  such  a  doctrine  would  be  an 
Innovation  upon  a  "settled  principle  of  law  and  the  establishing 
of  a  new  and  different  rule  from  that  which  has  governed  the 
sale  and  transfer  of  this  species  of  property  for  a  long  period  of 
time.  It  is  at  least  exceedingly  doubtful  whether  it  would  be  expe- 
dient to  inaugurate  a  new  and"  questionable  rule  of  conduct  for  the 
government  of  transactions  of  this  description,  even  if  the  law  per- 
mitted it  to  be  done.  The  hardship  which  may  fall  upon  the 
plaintiff  by  the  purchase  of  the  paper  in  question  may  operate 
quite  as  harshly  on  the  defendant,  as  the  assumption  is  that  he  had 
no  knowledge  of  the  inherent  vice  which  affected  the  note.  It  is 
difficult  to  apply  the  rules  of  law  in  all  cases  with  exact  justice. 
In  fact,  if  the  rule  be  as  the  authorities  hold,  and  as  should  be 
if  it  is  not  well  understood,  that  the  purchaser  of  paper  of  this 
description  takes  it  at  his  own  hazard  and  risk  without  any  war- 
ranty, unless  he  chooses  to  require  such  an  indemnity  and  makes 
it  a  part  of  the  contract,  no  serious  inconvenience  or  injury  can 
follow.  The  doctrine  of  caveat  emptor  applies,  and  the  fault  is 
with  the  person  who  fails  to  exact  a  warranty,  if  it  turns  out  that 
he  has  been  mistaken  or  has  unfortunately  made  an  unprofitable 
or  a  bad  bargain.  Neither  party  has  any  just  ground  of  complaint 
in  such  a  case. 

The  result  is  that  the  judgment  was  wrong  and  must  be 
reversed,  with  leave  to  the  plaintiff  to  amend  his  complaint  upon 
the  usual  terms  in  such  cases.  SLcrx.  Jul\-. 

All  concur,  except  Earl.  J.,  dissenting. 

Judgment  accordingly. 


480  Contract  of  the  Vendor 


Erwin  v.  Downs  {1857),  15  N.  Y.  575. 

Appeal  from  the  Supreme  Court.  The  defendant  was  sued, 
as  the  endorser  of  two  promissory  notes,  signed  Waller  &  Burr, 
for  the  payment  of  $150  each,  to  the  order  of  the  defendant.  The 
action  was  tried  before  a  referee,  who  found,  as  facts,  that  Waller 
&  Burr  were  two  married  women,  viz.,  Rachel  M.  Waller  and 
Henrietta  Burr,  doing-  business  as  a  mercantile  firm  in  the  city 
of  New  York.  That  the  promissory  notes  were  signed  by  said 
Henrietta  Burr,  in  the  name  of  Waller  &  Burr,  and  were  endorsed 
by  the  defendant,  for  the  benefit  and  accommodation  of  Waller 
&  Burr,  and  for  the  business  carried  on  by  them ;  that  said  notes 
were  transferred  to  the  plaintiff  before  maturity,  for  a  full  and 
valuable  consideration,  but  with  the  knowledge  that  the  names  of 
Waller  &  Burr,  signed  to  the  notes,  were  those  of  two  married 
women.  He  further  found  that  when  the  notes  became  payable, 
the  presentation  was  made  at  the  place  of  business  of  the  said  firm 
of  Waller  &  Burr,  to  Mrs.  Burr,  and  payment  thereof  refused, 
but  in  the  absence  of  Mrs.  Waller;  and  notice  of  non-payment 
was  duly  served  on  the  defendant.  The  referee  reported  that  the 
plaintiff  was  entitled  to  judgment,  and  the  Supreme  Court,  at 
general  term  in  the  first  district,  affirmed  the  judgment  rendered 
on  his  report.    The  defendant  then  appealed  to  this  court. 

S.  F.  Clark  son,  for  the  appellant. 
Levi  S.  ChatHcld,  for  the  respondent. 

Siiankland,  J.  The  note  was  void,  as  against  the  makers. 
because  they  were  married  women,  and  incapable  of  contracting 
obligations  in  that  form.  But  when  the  defendant  endorsed  the 
note,  he  impliedly  contracted  that  the  makers  were__competent 
to'contract^  and  had  legally  contracted,  the  obligation  of  joint 
makers  of  the  note.  He  also  assumed  the  legal  obligation,  in  most 
respects,  of  the  drawers  of  the  bill.  The  fact,  known  to  the  plain- 
tiff at  the  time  he  took  the  note,  that  the  makers  were  married 
women,  did  not  deprive  him  of  the  character  of  a  bona  fide  pur- 
chaser. Ngr_jlQ£s  the_paypp's  knnwjedge  that  the  drawee  is  a. 
married  womenJt_djidhargp  thr  rlrnwer  in  case  of  non-pnyine.nt  of 
fneJjiH  by  the  drawee.  Nor  is  the  endorser  discharged,  though 
the  name  of  the  maker  is  forged.  (1  Comst,  113).  The  fact  is 
not  found  that  the  plaintiff  was  aware  the  note  was  accommoda- 
tion paper.  The  plaintiff  was  a  bona  fide  purchaser  within  the 
law  merchant.    Neither  the  complaint,  nor  the  finding  of  the  ref- 


Brown  et  al.  v.  Montgomery  et  al.  481 

eree,  tell  us  who  transferred  the  notes  to  the  plajntiff.  The  legal 
presumption  is,  that  he  received  them  from  some  legal  holder  in 
due  course  of  business. 

The  judgment  should  be  affirmed. 

Brown,  J.,  delivered  an  opinion  to  the  same  effect. 

All  the  other  judges  concurring.  -K^-  te-*-*^^-' 

Judgment  affirmed. 


Brown  et  al.  v.  Montgomery  et  al.  (1859),  20  N.  Y.  28/,  75  Am. 

Dec.  404. 

Appeal  from  the  Superior  Court  of  Buffalo.  The  plaintiffs 
sued  to  recover  the  amount  of  a  note  for  $297,  made  April  11, 
1856,  by  the  defendants,  payable  presently.  The  defence  was 
fraud  in  the  consideration  of  the  note. 

On  the  trial,  before  a  jury,  the  following  facts  appeared  in 
evidence :  At  the  date  of  the  note,  the  plaintiffs  were  the  holders 
of  a  check  drawn  by  Farnham,  Smedley  &  Kendall,  on  the  Bank 
of  Attica,  payable  to  the  order  of  and  indorsed  by  L.  R.  Farnham, 
one  of  that  firm,  for  $300,  post-dated  as  of  April  16,  1856.  On 
that  day  (April  11),  the  plaintiffs  employed  one  Cutting,  a  bill 
broker,  to  sell  the  check,  authorizing  him  to  allow  not  exceeding 
$4  discount.  Cutting,  on  the  same  day,  sold  it  to  defendants  for 
$297,  for  which  he  received  the  note  sued  on.  The  drawer  and 
indorser  of  the  check  failed  on  the  same  day,  and  when  it  matured 
the  defendants  caused  it  to  be  presented  at  the  Bank  of  Attica 
for  payment,  which  being  refused,  notice  was  given  to  the  plain- 
tiffs. The  defendants  offered  to  deliver  up  the  check  to  the 
plaintiffs,  and  required  their  note  to  be  returned,  but  this  the 
plaintiffs  refused  ;  and  the  defendants  again  offered  the  check  to 
the  plaintiffs  on  the  trial. 

Cutting,  who  was  examined  by  the  defendants,  swore  that 
the  check  was  handed  to  him  by  the  plaintiffs  in  the  afternoon, 
and  that  before  selling  it  to  the  defendants,  he  offered  it  to  Mr. 
Chard,  who  declined  to  purchase  it,  and  said  that  he  had  one 
drawn  and  indorsed  by  the  same  parties,  which  had  that  day  been 
protested  for  non-payment,  and  he  showed  the  protested  check  to 
the  witness.  The  witness  and  Chard  talked  about  the  different 
members  of  the  firm,  and  Chard  said  he  considered  them  perfectly 
good.  The  witness  then  went  directly  to  the  defendants,  and  sold 
them  the  check  as  above  mentioned,  without  saying  anything 
about  the  protested  check  or  his  conversation  with  Chard.    Mont- 


4^1!  Contract  of  the  Vendor 

gomery,  wlio  transacted  the  business  for  the  defendants,  said  he 
considered  the  check  good,  and  took  it  readily. 

It  appeared  that  the  drawers  of  the  check  kept  an  account  at 
the  Liank  of  Attica,  and  were  wholesale  merchants,  in  good  credit 
and  standing,  until  that  day,  when  they  stopped  payment ;  and 
their  checks  to  a  considerable  amount,  including  the  one  men- 
tioned by  Chard,  were  refused  payment  on  that  and  the  succeed- 
ing days,  and  remained  unpaid  at  the  time  of  the  trial.  Some 
of  them  were  post-dated  like  the  check  in  question.  The  defend- 
ants' business  was  buying  and  selling  negotiable  paper  and  deal- 
ing in  uncurrent  money.  The  transaction  took  place  in  Buffalo, 
where  all  the  parties  lived. 

The  court  charged  the  jury,  that  the  non-payment  and  protest 
of  the  check,  on  the  nth  April,  was  evidence  tending  to  show 
insolvency  in  the  drawers ;  that  it  was  the  duty  of  Cutting  to 
communicate  to  the  defendants  what  he  had  heard  Chard  say 
about  the  protest  of  that  check,  without  regard  to  what  he  may 
have  thought  about  the  solvency  of  the  drawers ;  and  if  he  did 
not  do  so,  and  they  were  really  insolvent,  the  plaintiffs  could  not 
recover  on  the  note.  The  plaintiffs'  counsel  excepted  to  both 
branches  of  the  charge.  There  was  a  verdict  and  judgment  for 
the  defendants,  which  was  affirmed  at  a  general  term.  The  plain- 
tiffs appealed. 

Amasa  J.  Parker,  for  the  appellants. 
Lorenzo  K.  Haddock,  for  the  respondents. 

Denio,  J.  I  think  there  is  no  error  in  the  charge  to  the  jury 
in  the  Superior  Court.  The  law  unquestionably  is,  as  it  was 
assumed  on  the  argument,  that  notice  to  the  plaintiffs'  agent,  Cut- 
ting,  while  he  was  actually  engaged  in  attempting  to  sell  the 
check,  of  the  failure  of  the  drawers,  was  equivalent,  so  far  as  the 
present  action  is  concerned,  to  notice  to  tile  plaintiffs  themselves. 

What  Chard  informed  him,  was  not  precisely  that  Farnham 
&  Co.  had  failed,  but  that  their  check  on  the  bank  at  which  they 
kept  their  account  was  that  day  protested  for  non-payment.  This, 
prima  facie  was  notice  that  they  had  suspended  payment ;  for 
when  a  business  man  in  a  commercial  town  fails  to  meet  his  paper, 
payable  at  a  bank,  and  especially  his  checks  upon  the  bank  at 
which  he  keeps  his  account,  the  natural  inference  which  every 
one  draws  is,  that  he  is  no  longer  able  to  pay  his  debts.  Such 
a  circumstance  may  occur  from  oversight  or  accident,  but  those 
are  exceptional  cases.  The  failure  to  meet  the  paper  is  itself  a 
suspension  of  payment,  and  noticeojTsuch  a  factr~unaccompanie6? 
with  any  explanation  which  would  give  it  a  different  character, 


Brown  et  al.  v.  Montgomery  et  al.  483 

is  notice  of  the  commercial  failure  of  the  party.  That  it  was  so 
understood  by  Cutting  and  Chard  is  evident  from  the  fact  that 
they  speculated  upon  the  question,  whether  the  members  of  the 
firm  drawing  the  check  would  ultimately  be  able  to  pay.  Upon 
that  question,  Chard,  as  a  creditor  is  apt  to  do,  took  the  most 
favorable  view.  It  is  apparent  that  neither  of  them  expected  the 
check  to  be  paid  on  presentation  when  it  should  mature,  five  days 
afterwards.  The  Superior  Court  considered  that  the  confidence 
which  Chard  expressed  in  the  ultimate  solvency  of  the  members 
of  the  firm,  did  not  relieve  Cutting  from  the  duty  of  communi- 
cating to  the  defendants  the  fact  that  its  check  had  not  been  met. 
I  am  of  the  same  opinion.  Up  to  that  time  the  drawers  were  in 
good  credit,  and  their  paper  of  this  kind,  we  are  to  presume,  was 
promptly  met.  Thereafter,  the  holders  of  such  paper  were  to  be 
put  upon  their  legal  diligence  in  the  courts,  with  a  fair  expecta- 
tion, perhaps,  that  they  might  ultimately  be  able  to  obtain  pay- 
ment. The  difference  between  a  bank  check  havingjive  days\ 
to  run,  and  which  is  then  to  be  paid,  and  a  suspended  debt  / 
against  parties  who  have  failed,  is  sufficiently  obvious.  TheJ 
defendants  purchased  this  check  as  one  of  the  former  class,  while 
the  plaintiffs'  agent  well  knew  that  it  belonged  to  the  latter,  and 
withheld  that  knowledge  from  the  defendants.  The  plaintiffs'  con- 
duct is  less  censurable,  morally,  than  it  would  be  had  it  been 
proved  that  they  personally  knew  of  the  failure  of  the  drawers ; 
but  in  point  of  law,  the  case  is  the  same  as  though,  after  hearing 
that  Farnham  &  Co.  had  failed,  they  took  the  paper  which  they 
held  against  them  into  the  street,  and  sold  it  to  parties  who  had 
not  heard  of  that  event.  Such  an  act  could  not  be  justified  at 
law  any  more  than  in  the  forum  of  conscience.  The  judge  was 
therefore  perfectly  correct  in  instructing  the  jury,  that  it  was  the 
dutv  of  Cutting  to  communicate  to  the  defendants  what  he  had 
Heard  Chard_say  as  to  the  protest  ot  the  other  check.  Re  was 
also  correct  in  advising  them  that  the  consequence  of  omitting 
to  do  so  was,  that  the  plaintiffs  could  not  recover  on  the  note. 
Where  a  party  negotiates  commercial  paper,  payable  to  bearer, 
or"~under~Tn"e~  blank  Indorsement  of  another  person,  he  cannot 
"Be  sued  on  the  paper  because  ne  is  not  a  pai  ly-ter  it ;  but  he 
nevertheless  warrants  that  he  has  no  knowledge  of  any  facTs" 
which  pr"ove~"the~paper  to  be  worthless,  on  account  of  the~tailure 
of  the  makers,  or  bv  its  being  already  paid,  ui  ulherwise  to 
have  become  void  or  defunct ;  for,  says  Judge  Story,  any  conceal- 
ment  of  this  nature  would  be  a  manifest  fraud.  (Story  on  Prom. 
Notes,  §  118). 


484  Contract  of  Accommodation  Parties 

The  plaintiffs'  counsel  argued  that,  according  to  the  case  of 
Nichols  v.  Pinner  (18  N.  Y.,  295),  the  plaintiffs  and  their  agent 
were  warranted  in  maintaining  silence  as  to  the  failure  of  Farn- 
ham  &  Co.,  though  they  knew  it  and  the  defendants  did  not.  But 
the  cases  are  essentially  different.  There  we  decided,  that  where 
a  merchant,  knowing  himself  to  be  insolvent,  purchases  goods 
without  disclosing  the  fact,  there  being  no  inquiry  made,  he  is 
not  necessarily  guilty  of  fraud,  as  he  may  honestly  believe  that 
he  can  go  on  and  retrieve  his  affairs.  Where  so  much  of  the  trade 
of  the  country  is  conducted  without  invested  capital,  or  on  bor- 
rowed capital,  it  must  often  happen  that  a  merchant  who  is  ulti- 
mately successful  has  known  periods  of  commercial  disaster  when 
his  property  would  not  pay  his  debts.  It  would  be  too  strict  to 
hold,  that  under  such  circumstances  he  must  in  all  cases  go  into 
liquidation,  or  expose  himself  to  probable  bankruptcy  by  disclos- 
ing his  condition.  But  the  case  does  not  countenance  the  position, 
that  a  dealer  who  has  been  of  known  standing,  but  who  has  sud- 
denly failed  in  business,  can  go  to  those  who  were  acquainted  with 
his  former  character,  but  who  have  not  heard  of  his  failure,  and 
innocently  purchase  their  property  on  credit.  Judge  Selden,  in 
his  opinion,  puts  that  case  as  one  not  covered  by  the  judgment. 

The  judge  was  also  right  in  stating  to  the  jury,  that  the  non- 
payment of  the  check,  spoken  of  by  Chard,  was  evidence  upon  the 
question  of  the  insolvency  of  the  drawers.  I  have  already  stated 
what  T  consider  the  necessary  inference  from  such  a  circumstance 
among  business  men.    The  judgment  must  be  affirmed. 

Johnson,  Ch.  J.,  Comstock,  Gray  and  Grover,  Js.,  concur- 
ring. Judgment  affirmed. 

Section  XII — Contract  of  Accommodation  Parties.     §  31. 

National  Citizens'  Bank  v.  Toplitz  (1903),  81  App.  Div.  593,  81 
N.  Y.  Supp.  422. 

Appeal  from  Trial  Term,  New  York  county. 

Action  by  the  National  Citizens'  Bank  of  the  city  of  New 
York  against  Emma  Ida  Toplitz.  From  a  judgment  for  plaintiff, 
defendant  appeals.    Affirmed. 

Argued  before  Van  Brunt,  P.  J.,  and  Hatch,  Patterson, 
O'Brien,  and  Ingraham,  J  J. 

R.  L.  Sweeay,  for  appellant. 
Charles  Blandy,  for  respondent. 


National  Citizen's  Bank  v.  Toim.it/  485 

Patterson,  J.  On  the  26th  of  December,  1899,  the  defend- 
ant made  her  promissory  note,  by  which  she  promised,  five 
months  after  date,  to  pay  to  the  order  of  L.  Toplitz,  Son  &  Co. 
$5,000  at  the  Chemical  National  Bank,  N.  Y.,  for  value  received. 
The  note  was  indorsed  by  L.  Toplitz,  Son  &  Co.,  and  was  dis- 
counted by  the  Ninth  National  Bank,  to  the  rights  of  which  bank 
the  plaintiff  has  succeeded  by  consolidation  of  the  two  corpora- 
tions. 

This  was  an  accommodation  note,  and  when  it  was  dis- 
counted by  the  Ninth  National  Bank  that  bank  had  full  notice 
that  it  was  an  accommodation  note.  It  was  not  paid  at  maturity, 
and  at  the  request  of  the  indorsers,  for  whose  benefit  it  was  dis- 
counted, the  time  of  payment  was  extended  without  the  knowledge 
of  the  maker.  The  complaint  is  in  the  usual  form  of  an  action 
upon  a  promissory  note  against  the  maker,  with  an  admitted 
credit  of  $1,000  paid  on  account.  The  answer  sets  up  that  the 
note  was  delivered  as  an  accommodation  note  for  the  express 
purpose  of  having  the  same  discounted  by  the  Ninth  National 
Bank  of  the  city  of  New  York,  and  upon  the  distinct  understand- 
ing that  at  its  maturity  it  should  be  taken  up  and  paid  by  the 
indorsers,  and  that  subsequent  to  the  delivery  of  the  note  the 
Ninth  National  Bank  had  knowledge  that  it  was  given  for 
accommodation,  and  that  after  its  maturity  the  Ninth  National 
Bank,  without  the  knowledge  or  consent  of  the  defendant,  entered 
into  an  agreement  by  which  it  extended  the  time  of  payment  of 
the  note,  and  that  for  a  certain  fixed  time  it  would  not  collect 
or  enforce  payment  thereof. 

When  the  case  came  on  for  trial,  the  facts  set  up  in  defense 
were  admitted ;  and  the  simple  question  arising  was  whether,  as 
to  the  plaintiff  in  the  action,  the  defendant,  the  maker  of  the  note, 
stood  in  the  attitude  of  a  surety,  and  was  released  from  her  obli- 
gation as  maker  of  the  note  by  reason  of  the  extension  of  the 
time  of  payment  given  to  the  person  for  whose  benefit  the  note 
was  discounted,  without  her  knowledge  or  consent.  The  trial 
judge  held  that  the  facts  thus  set  up  did  not  constitute  a  defense, 
and  that  the  defendant  was  primarily  liable  as  the  maker  of  the 
note,  notwithstanding  the  extension  of  the  time  of  payment.  In 
this  ruling  the  trial  court  was  right.  Concededly,  this  was  an 
accommodation  note^  It  was  given  with  the  intention  that  the 
indorser  should  raise  money  on  it  on  the  liability  of  the  maker. 
and  the  maker  is  liable  primarily  notwithstanding  the  knowledge 
of  the  holder  that  she  \vas  an  accommodation  maker  only. 
Section  55,  Negotiable  Instrument  Law  (Laws  1897,  p.  J2&7~c. 


486  Contract  of  Accommodation  Parties 

612).  This  note  was  discounted  on  the  credit  of  the  maker,  whose 
very  purpose  was  to  become  absolutely  liable.  Thus  she  became 
primarily  liable.  Therg_ig_no  relation  of  surety.  By  section  3  of 
the  statute  relating  to  negotiable  instruments,  the_person  primarily 
liable  is  the  one  who  by  the  terms  of  the  instrument  is  absolutely, 
required  to  pay  the  same,  and  all  other  persons  are  secondarily 
liable.  No  other  question  of  liability  can  arise  in  this  case  than 
such  as  appears  upon  the  face  of  the  instrument.  The  case  is 
entirely  unlike  that  of  Grow  v.  Garlock,  97  N.  Y.  81,  in  which  it 
was  held,  as  between  two  debtors  standing  to  each  other  in  the 
relation  of  principal  and  surety,  and  the  fact  being  known  to  a 
creditor,  that  creditor  was  bound  to  respect  such  relationship, 
no  matter  how  or  when  it  arose,  or  whether  he  consented  to  it  or 
not.  But  the  present  case,  if  not  determinable  by  the  ordinary 
rules  relating  to  negotiable  paper,  is  controlled  by  the  third  sec- 
tion of  the  negotiable  instrument  law.  The  note  was  made  by  the 
defendant  in  order  that  the  indorsers  might  receive  money  upon 
her  credit.  That  is  the  very  essence  of  an  accommodation  note. 
That  credit  was  given,  and  the  indorsers  received  the  money. 
Thejpaker.  was  thus  a  principal  debtor.  She  jost  nothing  by  the. 
extension  of  time  to  the  indorser,  for  she  had  no  right  of  action 
on  the  note  itself  as  against  the  indorsers.  She  could  not  sue 
them  on  the  note,  and  she  lost  nothing  of  her  claim  against  them, 
for  by  paying  the  note  at  any  time  she  could  have  maintained  her 
action  to  recover  from  the  indorsers  notwithstanding  the  exten- 
sion of  the  time  of  payment  of  the  note  by  the  bank.  On  the 
note  itself  the  maker  never  could  recover  against  the  indorsers. 
It  may  be  evidence  of  an  indebtedness  of  them  to  her,  the  circum- 
stances under  which  it  was  made  being  shown ;  but  the  liability 
of  the  indorsers  to  the  maker  would  arise,  not  on  the  note,  but 
out  of  the  original  credit  given  for  their  benefit,  and  her  payment 
of  money  on  their  behalf. 

The  verdict  for  the  plaintiff  was  properly  directed,  and  the 
judgment  should  be  affirmed,  with  costs.    All  concur. 


Maffat  v.  Greene  487 


Maffat  v.  Greene  (1898),  149  Mo.  48. 

Appeal  from  St.  Louis  City  Circuit  Court.  Hon  Leroy  B. 
Valliant,  Judge. 

D.  D.  Fassett,  for  appellant. 

Smith  J'.  Gait,  for  respondent. 

Gantt,  P.  J. — This  was  an  action  on  the  following  promis- 
sory note : 

"$3,218.  St.  Louis,  Mo.,  Feb.  20,  1893. 

"Four  months  after  date  I  promise  to  pay  to  the  order  of 
Domestic  Sewing  Machine  Co.,  thirty-two  hundred  and  eighteen 
dollars  at  their  office,  853  Broadway,  New  York.  Value  received. 
"Due  June  20th,  1893.  "E.  L.  Green  e." 

Indorsed : 
"No.  28,942.  3457 

"E.  L.  Greene.  June  23. 

"$3,218.  Due  June  20-23.  Payable  at  853  Broadway,  New  York. 
Domestic  Sewing  Machine  Co.,  David  Blake,  V.  P.  D.  Hutch- 
inson, S.  M.  Jones,  Jannette  P.  Moffat. 
"Pay  Chemical  National  Bank,  New  York  City,  or  order  for  col- 
lection for  account  of  Braddock  National  Bank,  Braddock, 
Penn.,  John  Kelly,  Cashier." 

Protested  June  2^  1893,  at  the  request  of  the  Chemical 
National  Bank,  for  failure  to  pay. 

The  plaintiff  as  indorser,  having  paid  said  note  after  its  dis- 
honor, sued  the  defendant  as  maker  in  the  circuit  court  of  St. 
Louis. 

The  answer  admits  the  execution  of  the  note  and  the  various 
indorsements,  and  then  proceeds  to  aver  that  defendant  was 
merely  an  accommodation  maker  of  said  note  for  the  Domestic 
Sewing  Machine  Company  without  any  consideration  therefor, 
of  which  plaintiff  and  the  other  indorsers  and  holders  had  notice, 
and  for  further  answer  defendant  says  that  the  plaintiff  is  a  part- 
ner of  said  S.  M.  Jones  in  said  petition  named,  and  was  such 
partner  at  the  time  said  note  came  into  the  possession  of  said 
Jones  and  the  plaintiff,  and  that  plaintiff  and  said  Jones  have  in 
their  possession,  or  said  Jones  has  in  his  possession  for  plaintiff's 
benefit,  with  her  consent,  a  large  amount  of  property  of  the 
Domestic  Sewring  Machine  Company,  placed  in  their  or  his  hands 
by  said  company  for  security  to  them  or  her  for  the  payment  of 


488  Contract  of  Accommodation  Parties 

the  note  in  this  case  sued  on ;  that  said  property  so  held  by  them 
or  him  is  of  the  value  of  at  least  $100,000.  That  they  have  real- 
ized, or  he  has  realized  for  her  benefit,  in  cash,  from  part  of  the 
property  so  held  by  them,  or  him  as  aforesaid  as  security  as  afore- 
said, and  now  hold  in  cash,  as  defendant  is  informed  and  believes, 
and  so  charges  the  fact  to  be,  more  than  sufficient  to  pay  said 
note,  according  to  the  terms  of  the  agreement  by  which  said 
property  was  by  said  company  left  with  them,  or  him  as  security 
as  aforesaid,  and  defendant  says  that  the  same  ought  to  be 
applied  by  the  plaintiff  and  said  Jones  to  the  payment  of  said 
note.  Defendant  says  that  the  plaintiff,  or  said  Jones  for  plain- 
tiff, has  realized  as  above  said,  if  not  sufficient  to  pay  said  note 
"in  full,  at  least  a  large  amount  that  should  be  credited  on  said 
note.  And  defendant  further  says  that  it  was  agreed  and  under- 
stood between  the  Domestic  Sewing  Machine  Company  and  said 
Jones  and  the  plaintiff  at  the  time  said  security  was  deposited  with 
them  as  aforesaid,  that  said  note  would  not  be  paid  by  the  said 
Greene,  and  that  he  was  not  to  be  called  upon  by  the  plaintiff  or 
said  Jones  to  pay  the  same,  but  that  the  same  should  be  paid  out 
of  the  property  so  held  as  aforesaid  by  them  as  said  security  as 
aforesaid.  Defendant  further  says  that  said  Domestic  Sewing 
Machine  Company  is  not  a  resident  of  this  state  and  is  insolvent. 
And  defendant  further  says  that  the  plaintiff  and  said  Jones  and 
said  Hutchinson  are  non-residents  of  the  state  of  Missouri.  That 
defendant  is  a  resident  of  the  state  of  Missouri.  Wherefore, 
having  fully  answered,  defendant  says  that  the  plaintiff  ought  not 
to  have  judgment  against  defendant,  and  ought  at  least  not  have 
judgment  against  him  until  the  amount  received  by  plaintiff,  or 
for  her  benefit  as  aforesaid,  is  credited  on  said  note,  and  not  until 
said  property  held  as  aforesaid  for  plaintiff's  benefit  as  security 
as  aforesaid  has  been  realized  upon  by  plaintiff,  and  applied  to 
the  payment  of  said  note.  Wherefore,  defendant  prays  that  the 
court  do  order  and  decree  that  judgment  be  not  entered  against 
defendant  until  plaintiff  has  fully  realized  upon  said  security 
held  for  her  benefit  as  aforesaid,  and  the  cash  now  realized  there- 
from, or  that  may  be  realized  therefrom,  be  credited  on  said  note, 
and  defendant  prays  such  other  and  further  order  and  decree  as 
to  the  court  may  seem  right  and  just. 

Plaintiff  in  her  reply  denied  all  the  new  matter  in  defendant's 
answer,  and  proceeding,  admits  that  said  S.  M.  Jones  had  a  con- 
siderable amount  of  property  in  his  hands  as  security  for  the  pay- 
ment of  the  note  in  suit  and  a  number  of  other  notes  to  a  large 
amount  and   said  collaterals  were  placed   in  his  hands  by  the 


Maffat  v.  Greene  489 

Domestic  Sewing  Machine  Company  to  secure  and  indemnify 
plaintiff,  Jones  and  Hutchinson  as  indorsers  of  said  note,  and 
sundry  other  notes;  that  Jones  has  realized  some  money  out  of 
said  collaterals,  but  the  amount  is  small  compared  to  the  amount 
of  his  and  their  liability  as  indorsers  for  said  Sewing  Machine 
Company ;  that  they  have  not  applied  any  part  of  said  collaterals 
to  the  payment  of  his  note ;  that  a  large  portion  of  said  collaterals 
is  in  litigation,  and  the  right  of  said  Jones  to  hold  and  apply 
them  is  questioned  and  denied,  and  neither  plaintiff  nor  said 
Jones  could  safely  apply  the  same  pending  said  litigation.  Plain- 
tiff admits  that  said  Jones,  Hutchinson  and  herself 'are  all  resi- 
dents of  Pennsylvania  and  non-residents  of  Missouri  and  that  the 
said  Jones  holds  said  collaterals  in  Pittsburg,  Pennsylvania. 

The  evidence  tended  to  prove  that  Defendant  Greene  was 
the  agent  of  the  Domestic  Sewing  Machine  Company  at  St. 
Louis ;  that  under  an  agreement  with  the  company  he  made  his 
accommodation  notes  from  time  to  time  for  the  use  of  the  com- 
pany under  an  arrangement  allowing  him  to  reimburse  himself 
out  of  sales  of  the  company's  machines ;  that  the  note  sued  on  was 
of  this  character ;  that  at  the  time  of  the  insolvency  of  the  com- 
pany his  notes  to  and  indorsements  for  it  amounted  to  about 
$140,000,  and  he  held  assets  which  amounted  in  his  opinion  to 
thirty-three  to  forty  per  cent  of  his  liabilities  on  that  account. 
It  further  appeared  that  after  receiving  the  note  in  suit  the  sewing 
machine  company  sent  it  by  George  Blake,  secretary  of  said  com- 
pany, to  Pittsburg ;  that  S.  M.  Jones  was  agent  at  Pittsburg  for 
said  company  and  had  contracted  to  furnish  a  responsible 
indorser  on  "dealers'  paper"  to  the  amount  of  $50,000;  that  the 
note  in  suit  under  this  agreement  was  indorsed  by  Hutchinson, 
Jones  and  plaintiff,  Mrs.  Maffat,  and  the  money  procured  from 
the  Braddock  National  Bank  of  Braddock,  Pennsylvania.  The 
company  having  failed  to  honor  the  note,  plaintiff  Mrs.  Maffat, 
paid  it,  and  is  now  its  holder. 

At  the  time  Mrs.  Maffat  indorsed  the  note  she  was  not  a 
partner  of  Jones  and  had  no  knowledge  of  the  relation  defendant 
bore  to  the  note  other  than  appeared  from  the  face  thereof,  viz.. 
that  he  was  the  maker,  and  principal  debtor;  she  indorsed  it 
before  maturity. 

On  the  fifth  day  of  May.  1803.  the  Domestic  Company 
assigned  what  is  known  as  its  Cleveland.  Ohio,  assets  to  Jones, 
to  protect  the  indorsers  of  its  paper.  Jones  testified  he  had  col- 
lected a  portion  of  these  collaterals  but  not  enough  to  hold  him- 
self, Hutchinson  and  plaintiff  harmless  by  reason  of  their  indorse- 


490  Contract  of  Accommodation  Parties 

ments.  At  the  time  of  the  trial  a  suit  in  equity  was  pending 
against  Jones  by  another  creditor  for  these  collaterals.  The 
receiver  also  claimed  them. 

The  circuit  court  rendered  judgment  for  defendant,  enjoin- 
ing plaintiff  from  prosecuting  her  suit  at  law  against  defendant 
on  said  notes  until  she  account  to  him  for  collaterals  she  holds, 
or  that  are  held  by  S.  M.  Jones  or  any  one  else  for  the  use  of  the 
Domestic  Sewing  Machine  Company,  and  apply  such  of  the  pro- 
ceeds thereof  as  in  law  should  apply  toward  the  payment  of  said 
note  and  that  she  pay  the  cost  of  this  suit. 
Plaintiff  appeals. 

I.  An  accommodation  maker  of  a  notejs  in  like  manner  a 
principal  at  common  law,  and  Jiable  of  course  to  a  bona  Me 
holder  as  principal  and  not  as  surety, 

"Accommodation  paper  stands  upon  grounds  somewhat  dif- 
ferent from  other  negotiable  instruments.  If  an  accommodation 
bill  or  note  is  made  and  put  into  circulation,  the  holder  whojias. 
advanced  the  monev_upon  it  may  recover  upon  jtLjuramst_any  of 
the  parlies  to  it,  notwithstanding  there  was  no  consideration,  for 
ltTas  between  the  parties  to  it,  and  although  no  action  could  have 
been  maintained  upon  it  between  the  original  parties.  When 
paper  of  this  kind  is  put  in  circulation  it  is  both  a  request  to 
advance  the  money  upon  it  and  a  promise  to  repay  the  amount 
so  advanced,  and  this  is  sufficient  consideration  to  bind  any  one 
whose  name  is  on  the  instrument  as  a  party  to  it."  ( I  Waite's 
Actions  and  Defenses,  617.) 

The  holder  may  recover  of  the  maker  notwithstanding  he 
knew  it  was"  accommodation  paper.  (1  Daniel,  Neg.  Inst.,  sec. 
786;  Stillwell  v.  Aaron,  69  Mo.  546;  Faulkner  v.  Faulkner,  73 
Mo.  338 ;  Miller  v.  Mellier,  59  Mo.  388.) 

In  Hillegas  v.  Stephenson,  75  Mo.  118,  it  was  held  that 
where  one  of  two  accommodation  signers  execute  a  note  as  a 
joint  maker  with  the  principal  debtor,  and  the  other,  as  payee 
and  indorser,  and  there  was  no  special  agreement  between  them, 
the  former  could  not  after  paving  the  note  call  upon  the  latter 
for  contribution. 

No  question  was  made  that  such  was  the  law  in  the  circuit 
court,  nor  was  it  denied  that  a  creditor  might  proceed  to  judg- 
ment at  law  on  his  note  before  exhausting  any  securities  he  might 
hold,  but  that  in  such  cases  if  the  debtor  desired  to  avail  himself 
of  such  securities  he  must  pay  the  note  and  become  subrogated 
to  the  securities,  but  an  exceedingly  important  modification  of 
the  general  rule  was  announced,  to  wit,  that  if  the  nature  of  the 


Maffat  v.  Greene 


491 


case  was  such  that  the  debtor  could  not  be  subrogated  to  the 
securities  held  by  or  to  the  use  of  plaintiff,  the  plaintiff  could  not 
sue  until  he  had  first  exhausted  the  securities. 

And  it  was  considered  that  because  plaintiff  was  living  in 
another  state,  and  held  certain  collaterals  in  that  state,  her  right 
to  recover  on  her  note  in  this  state  should  be  denied  until  she 
first  exhausted  her  remedies  against  the  collaterals. 

We  have  been  unable  to  find  any  authority  for  the  modifica- 
tion thus  announced,  and  we  can  not  agree  to  it.  On  the  con- 
trary we  understand  that  under  the  facts  of  this  case  when  this, 
note  was  protested  and  notice  given  to  plaintiff,  her__liabilitv 
became  fixed,  and  when  she  paid  it  she  had  an  absolute  right_ 
to  sue~defendant  as  the  maker  thereof,  irrespective  of  any  collat- 
erals she  lmght~have  afterwards  obtained^  As  to  plaintiff  he 
was  the  real  debtor. 

We  do  not  think  the  authorities  or  sound  reason  go  further 
than  to  hold  that  when  a  surety  pays  a  debt  for  his  principal  He. 
is  entitled  to  be  subrogatgdjojhe  securities  held  by  the  creditor. 
Until  payment  he  is  not  entitled  to  be  subrogated,  and  his  right 
of  subrogation  is  to  the  collaterals  just  as  he  finds  them.  The 
creditor  is  not  required  to  furnish  his  debtor  with  immunity  from 
losses.  The  surety  can  only  have  the  collaterals  or  other  secu- 
rity as  they  actually  exist  with  their  burdens  and  advantages. 
(Bank  v.  Wood,  71  N.  Y.  loc.  cit.  412.) 

In  this  State  from  an  early  date  it  has  been  uniformly  held 
that  a  mortgagee  has  three  concurrent  remedies.  He  may  sue  on 
his  note,  foreclose  his  mortgage,  and  bring  ejectment.  (Thornton 
v.  Pigg,  24  Mo.  249;  Allen  v.  Dennott,  80  Mo.  56.) 

The_circumsta_nces  that  the  collaterals  are  in_  another  State_ 
can  not  affect  the  principal  under  considerationTlt  so  happens, 
it  is  true,  that  in  this~case  the  collaterals  are  in  Pittsburg,  Penn- 
'  sylvania,  and  that  they  are  held  not  for  plaintiff  alone,  but  for 
Jones  and  Hutchinson,  and  that  suits  in  equity  are  pending  in  the 
Federal  courts  denying  the  right  of  Jones  and  the  plaintiff  to  hold 
them  at  all.  and  the  receiver  is  also  denying  their  right  to  collect 
them,  but  whatever  the  difficulties  of  the  case,  defendant  can  not,  y^\  e 


set  them  up  as  aJlefens^a4^ntifEs.^ctipn  against  him  on  his 
undertaking  to  pay  this  note  absolutely  at  a  certain  _time. 

The  answer  only  constituted  a  defense  because  it  alleged 
an  agreement  between  plaintiff  and  defendant  and  the  sewing 
machine  company  that  defendant  should  only  be  liable  for  a  bal- 
ance after  crediting  the  collaterals,  but  not  a  word  of  evidence 
sustains  this  allegation.     Stripped  of  that  averment  the  answer 


j  o>>jeJLa»Jauu 


492  Contract  ok  Accommodation  Parties 

pleads  no  defense  whatever.  The  testimony  proved  none  against 
plaintiff,  who  is  an  innocent  purchaser  for  value  and  without 
notice  of  any  relation  of  surety  and  principal  between  defendant 
and  the  company,  or  any  want  of  consideration. 

Ifjhe  defense  relied  on  in  this  case  be  sustained^ the  doctrine 
thata  negotiable  note  is  a  "courier  without  luggage"  must  be 
abandoned.  It  would  require  the  plaintiff  to  stop  and  sue  [ones 
and  abide  the  marshaling  and  adjusting  of  Hutchinson's,  Jones's 
and  her  respective  equities  to  the  collaterals  in  Jones's  hands,  if 
any  are  left  after  the  suit  in  the  Federal  court  shall  be  determined 
against  Jones.  It  would  make  defendant's  promise  to  pay  not 
an  absolute,  but  a  conditional  one  and  the  time  of  payment  utterly 
indefinite.  Commercial  paper  can  not  be  subjected  to  such  a  rule 
without  the  most  serious  results. 

The  judgment  should  have  been  rendered  for  the  plaintiff 
upon  the  pleadings  and  conceded  facts. 

The  judgment  is  reversed  and  the  circuit  court  mill  enter 
judgment  for  the  plaintiff.  . 

Sherwood  and  Burgess,  JJ.,  concur.     A-rCv     ^J2s^n^" 


The  Merchants  &  Mfrs.'  Nat.  Bank  v.  Cumings,  imp.  (1896), 
149  N.  Y.  360. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  second  judicial  department,  entered  upon  an  order 
made  June  18,  1894,  which  affirmed  a  judgment  in  favor  of  plain- 
tiff rendered  upon  a  decision  of  the  court  on  trial  without  a  jury. 

The  action  was  brought  upon  a  promissory  note,  against  the 
maker  and  indorser. 

The  facts,  so  far  as  material,  are  stated  in  the  opinion. 

George  H.  Decker,  for  appellant. 
Daniel  Finn,  for  respondent. 

Andrews  Ch.  J.  The  facts  briefly  are  that  on  the  18th  day 
of  March,  1893,  one  John  L.  Cumings  indorsed  the  note  of  one 
Joseph  Cumings  for  his  accommodation,  dated  on  that  day,  for 
the  sum  of  $2,000  payable  to  the  order  of  John  L.  Cumings  three 
months  after  date,  at  the  plaintiff's  bank,  where  it  was  discounted. 
Contemporaneously  with  the  indorsement,  and  to  induce  John  L. 
Cumings  to  indorse  the  same,  Joseph  Cumings  made  his  certain 
other  note  of  the  same  date  and  amount,  and  payable  at  the  same 


Merchants  &  Mfrs.'  Nat.  Bank  v.  Cumings  493 

time  and  place  as  the  former  note,  to  his  own  order,  and  there- 
upon indorsed  his  own  name  thereon  and  procured  it  to  be 
indorsed  also  by  the  defendant.  Over  the  indorsement  on  the 
second  note  was  this  statement :  "This  note  is  given  to  and  to  be 
held  by  John  L.  Cumings  as  collateral  security  for  his  indorse- 
ment on  my  note,  same  tenor,  date  and  amount,  favor  of  said 
John  L.  Cumings,  which  I  have  given  to  said  John  L.  Cumings 
to  be  by  him  indorsed  and  delivered  to  the  Merchants  and  Man- 
ufacturers' National  Bank  of  Middletown,  N.  Y.,  for  the  purpose 
of  renewing  my  note  due  at  said  bank  Mch.  18th,  1893.  Pro- 
test hereof  and  notice  thereof  hereby  waived."  This  second  note 
was  thereupon  delivered  to  John  L.  Cumings,  who  then  indorsed 
the  note  first  mentioned.  The  note  discounted  by  the  bank  was 
not  paid  at  maturity  and  was  duly  protested,  and  is  still  held  by 
the  bank,  and  is  unpaid,  and  so  far  as  appears  no  proceedings  to 
collect  it  have  been  taken.  On  May  20th,  1893,  before  the  matu- 
rity of  either  note,  John  L.  Cumings,  by  formal  written  assign- 
ment, transferred  to  the  bank  the  second  note  with  all  his  "right, 
title  and  interest"  therein.  This  note  was  also  protested  at  matu- 
rity, and  not  having  been  paid,  this  action  was  brought  thereon 
against  the  indorsers.     Ira  T.  Cumings  alone  defends. 

The  plaintiff,  among  other  things,  relies  upon  the  established 
rule  in  equity  that  a  creditor  is  entitled  to  the  benefit  of  all  col- 
lateral securities  or  counter  bonds  which  a  principal  debtor, has 
given  to  a  surety  or  a  person  standing  in  the  position  of  a  surety 
for  his  indemnity.  (Moses  v.  Murgatroyd,  1  Jo.  Ch.  119;  Vail 
v.  Foster,  4  N.  Y.  312.)  But  in  our  view  it  is  unnecessary  to 
determine  whether  the  present  case  is  within  this  principle.  What- 
ever rightjohn  L.  Cumings  had  to  the  note  in  suit  and  to  main-^ 
tain  anaction  thereon  against  the  defendant,  was  acquired  bv  thg_ 
plarrnnffjuuler  his  assignment.  If  on  the  non-payment  of  the  first 
note~and  the  charging  of  John  L.  Cumings  as  indorser,  the  latter 
could  have  maintained  an  action  on  the  second  note,  and  have 
recovered  the  amount  thereof,  without  having  paid  the  first  note, 
then  we  perceive  no  reason  why  he  could  not,  by  assignment  of 
the  second  note  to  the  bank  which  held  the  original  note  and 
debt,  have  substituted  the  bank  in  his  place,  and  given  it  any 
right  of  action  which  he  himself  had  or  might  have  in  case  of 
the  payment  of  the  original  note  and  its  due  protest.  The  char- 
acter of  the  obligation  which  the  defendant  assumed  .becomes  in 
this  view  a  material  inquiry.  It  turns  upon  the  distinction  between 
a  contract  to  indemnify  against  liability,  and  a  contract  to  indem- 
nify against  damage  resulting  from  a  liability..  tD  If  in  the  present 


494  Contract  of  Accommodation  Parties 

casejthe  undertaking  of  the  defendant  was  of  the  former  class, 
the  action  can  be  maintained,  because  the  liability  of  John  L. 
Cumings  became  fixed  upon  the  non-payment  and  protest  of  the 
first  note,  and  has  not  been  discharged^  If ,  on  the  other~"hand, 
the  contract  into  which  the  defendant  entered  was  against  damage 
which  should  accrue  to  Tohn  L.  Cumings  by  reason  of  his  liability 
as  indorser,  there  can  be  no  recovery,  because  as  yet  he  has  suf- 
fered no  legal  damage.  He  has  as  vet  paid  nothing,  and  mere 
liability,  without  more,  is  not  damage  within  the  distinction  men- 
tioned. The  distinction  between  the  two  classes  is  familiar,  and 
is  stated  with  great  distinctness  in  Belloni  v.  Freeborn  (63  N.  Y, 

39o). 

It  is  not  always  easy  to  determine  the  nature  of  the  indem- 
nity into  which  a  surety  enters.  In  the  present  case  we  have 
the  fact  that  John  L.  Cumings  refused  to  assume  liability  as 
indorser  on  the  first  note  until  the  second  note  was  given.  There 
is  the  further  fact,  which  appears  in  the  statement  on  the  back  of 
the  second  note,  that  it  was  given  as  collateral  security  for  his 
indorsement  of  the  first  note.  There  is  the  further  significant  fact 
that  the  second  note  was  payable  at  a  day  certain,  which  was  coin- 
cident with  the  day  of  the  maturity  of  the  first  note.  John  L. 
Cumings  became  indorser  of  the  first  note  at  the  request  of  the 
defendant,  for  such  is  the  legal  effect  of  the  transaction.  Under 
the  circumstances  /f /£  not  a  reasonable  construction  that  the 
security  was  given  to  protect  him  against  the  liability  which  he 
assumed,  and  that  _as_between  the  parties  the  intention  was  to 
place  upon  the  defendant  and  his  co-indorser  the  burden  of  look^ 
ing  after  and  providing  for  the  payment  of  ^the  first  note  at  its, 
maturity,  and,  failing  to  do  this,  to  create  an  immediate  liability. 
Jo  Tohn  L.  Cumings,  by  enforcing  which  he  could,  in  case  the 
bank  would  defer  proceedings  against  him  on  his  indorsement^ 
realize  the  means  for  the  payment  of  the  original  note. 

In  Russell  v.  La  Roque  (11  Ala.  352),  a  case  nearly  identical 
with  this,  it  was  held  that  the  plaintiff,  who,  at  the  request  of  the 
defendant,  became  surety  for  him  on  a  note  to  a  third  person, 
receiving  as  his  indemnity  the  note  of  the  defendant  payable  at  a 
day  certain,  may  sue  upon  it,  though  he  had  not  been  compelled 
to  pay  the  debt  for  which  he  became  surety  if  his  liability  to  pay 
continues.  In  Hap  good  v.  Wellington  (136  Mass.  217),  the 
plaintiff  had,  at  the  request  of  the  defendant,  indorsed  his  note 
for  his  accommodation  and  contemporaneously  therewith  and  as 
collateral  security  against  loss  on  account  of  said  indorsement 
the  defendant  gave  to  the  plaintiff  his  note  for  the  same  amount. 


Thatcher  v.  West  River  National  Bank  495 

The  note  indorsed  by  the  plaintiff  was  transferred  for  value  and 
was  not  paid  at  maturity.  Thereupon  the  plaintiff  brought  suit 
upon  the  note  given  as  indemnity  and  the  court  held  that  the 
plaintiff  was  entitled  to  recover,  although  payment  of  the  other 
note  had  not  been  enforced  and  it  was  still  outstanding  and 
unpaid.  In  Loosemore  v.  Radford  (9  M.  &  W.  657),  the  plaintiff 
and  defendant  being  joint  makers  of  a  promissory  note,  the 
defendant  as  principal  and  the  plaintiff  as  surety,  the  defendant 
covenanted  with  the  plaintiff  to  pay  the  amount  to  the  payee  of 
the  note  on  a  given  day.  but  made  default;  held,  in  an  action  on 
the  covenant,  that  the  plaintiff  was  entitled,  though  he  had  not 
paid  the  note,  to  recover  the  full  amount  of  it  by  way  of  damages. 

The  question  is  not  free  from  doubt,  and  the  decisions  are 
not  altogether  harmonious.  See  Osgood  v.  Osgood,  39  N.  H. 
209 ;  Child  v.  Powder  Works,  44  id.  354.  The  contract  is  ambig- 
uous, but  we  think  that  construction  which  treats  it  as  one  against 
liability  is  most  consistent  with  the  admitted  facts.  On  payment 
of  the  note  the  liability  of  John  L.  Cumings  on  the  original  note 
will  be  discharged  and  the  defendant  by  subrogation  will  be 
entitled  to  enforce  it  against  the  maker. 

The  judgment  should  be  affirmed. 

O'Brien,  Haight  and  Vann,  JJ.,  concur;  Gray,  Bartlett 
and  Martin,  JJ.,  dissent.  "V^  ^-^- — 

Judgment  affirmed. 

Thatcher  v.  The  West  River  Nat.  Bank  (1869),  19  Mich.  196. 

Error  to  Saginaw  Circuit. 

This  was  an  action  of  assumpsit  upon  a  promissory  note 
brought  by  a  corporation  plaintiff,  whose  name  was  stated  in  the 
commencement  of  the  declaration  to  be — "The  West  River 
National  Bank  of  Jamaica,  Vermont."  The  note  declared  on  was 
made  by  E.  Thatcher,  the  defendant  below,  and  was  payable  to 
the  order  of  "L.  N.  Sprague,  Ag't."  The  defendant  pleaded  the 
general  issue  and  gave  notice  that  Sprague,  the  payee  named  in 
the  note,  was  the  agent  of  the  Jamaica  Leather  Company,  and  that 
the  note  was  given  without  consideration  to  the  defendant,  and 
for  the  accommodation  of  the  Leather  Company,  of  which  the 
plaintiff  had  notice. 

E.  Thatcher,  plaintiff  in  error  in  person. 
W.  L.  Webber,  for  defendant  in  error. 

Christiancy,  J. — The  defense  relied  upon  by  the  defendant 


496  Contract  of  Accommodation  Parties 

below,  without  going  here  into  unnecessary  particulars,  was  sub- 
stantially, that  the  note  was  given  to  L.  N.  Sprague,  agent  of  the 
Jamaica  Leather  Company,  (to  whose  order  it  was  made  payable), 
without  consideration,  and  merely  for  the  accommodation  of  said 
Leather  Company,  upon  the  assurance  of  Sprague  that  the  note 
would  be  taken  care  of  and  the  defendant  protected ;  and  that  the 
bank,  the  endorsee  and  plaintiff  below,  received  it  with  full  notice 
of  these  facts. 

The  testimony  of  the  defendant  himself,  and  perhaps  some 
other  testimony  in  the  cause,  tended  to  show,  that  the  note  was 
given  for  the  purpose  above  stated,  and  without  consideration, 
and  with  the  assurance  of  Sprague  above  stated. 

But  the  defendant's  own  testimony  further  tended  to  show 
that  the  note  was  given  for  the  express  purpose,  and  with  the  full 
understanding  that  it  was  to  be  negotiated  to  the  bank  to  enable 
the  Leather  Company  to  raise  money  upon  it.  It  was  also  clearly 
shown  by  other  evidence  that  the  bank  did  discount  the  note 
endorsed  in  blank  by  Sprague,  as  agent,  and  paid  the  money  for 
it ;  and  there  was  no  evidence  of  a  contrary  tendency. 

We  think  it,  therefore,  wholly  immaterial  whether  the  bank 
J251JJig*iggi  or  nnt-  of  trip  circumstances  under  which,  and  the  pur- 
j  K  isc  for  which  it  was  given,  and  of  the  other  facts  relied  upon  in 
the  defense.  Had  the  directors  of  the  bank,  knowing  the  nature 
of  the  previous  transactions  between  defendant  and  the  Leather 
Company,  been  present  and  heard  and  known  the  whole  arrange- 
ment between  Sprague  and  the  defendant,  when  the  note  was 
given,  the  bank  would  still  be  entitled  to  recover.  See  Charles  v. 
Marsden,  i  Taunt.  224;  Smith  v.  Knox,  3  Esp.  46;  Thompson  v. 
Shepherd,  12  Met.  311;  Brown  v.  Mott,  7  Johns.  361;  Lord  v. 
Ocean  Bank,  20  Penn.  St.  384;  Grant  v.  Ellicott,  7  Wend.  227; 
Renwick  v.  Williams,  2  Md.  356;  Molson  v.  Hawlcy,  1  Blatch. 
409;  Carnthcrs  v.  West,  11  Q.  B.  143. 

The  want  of  consideration,  and  the  assurance  of  Sprague  that 
the  note  would  be  taken  care  of,  do  not  affect  the  right  of  the_ 
bank  as  endorsee,  though  taking  it  with  notice.  Mere  accommo- 
dation paper  is  generally,  at  least,  without  consideration,  and 
such  assurances,  express  or  implied,  are  always  given  or  relied 
upon,  when  such  accommodation  paper  is  given.  Such  facts 
might  constitute  a  good  defense  as  against  the  party  for  whose 
accommodation  it  is  given ;  but  to  allow  them  to  defeat  a  recovery 
by  an  endorsee  who  advances  money  upon  it — when  that  is  the 
purpose  for  which  it  is  given — would  defeat  the  very  purpose  for 
which  such  paper  is  made,  and  render  the  transaction  absurd. 


Whittier  v.   Eager  497 

As  between  the  defendant  and  the  endorsee,  the  defendant 
took  the  risk  of  Sprague's  assurances  being  made  good,  and  his 
remedy  is  upon  him  or  the  party  he  represented. 

These  conclusions  render  it  unnecessary  to  notice  the  defend- 
ant's request  to  charge  with  reference  to  the  want  of  considera- 
tion, and  the  question  of  notice,  or  the  charges  given  upon  these 
points. 

The  Circuit  Court  was  right  in  holding  that  there  was  no 
evidence  tending  to  show  that  the  Leather  Company  had  any 
interest  in  the  money  sought  to  be  recovered  in  this  suit. 

A  copy  of  the  note  with  the  endorsement,  accompanied  the 
declaration,  and  the  note  and  endorsement  were  read  in  evidence 
without  objection,  and  no  evidence  was  given  tending  to  disprove 
the  endorsement.  The  Court  was  therefore  right  in  refusing  to 
charge  that  it  was  necessary  to  prove  the  endorsement  in  any 
other  way. 

We  see  no  error  in  the  record,  and  the  judgment  must 
be  affirmed,  with  costs.  _ 

The  other  justices  concurred.  *d^^    ^SX<yy\™-^   ■ 


Whittier  v.  Eager  (1861),  1  Allen  (Mass.)  499. 

Contract  by  the  indorsee  against  the  maker  of  a  promissory 
note.  Answer,  that  the  note  was  an  accommodation  note,  and 
that  there  was  no  consideration  for  the  making  or  indorsement 
thereof. 

At  the  trial  in  the  superior  court,  the  defendant  testified  that 
he  gave  the  note  in  exchange  for  a  note  of  S.  W.  Bean  &  Co.,  the 
payees,  and  that  it  was  for  their  accommodation ;  that,  at  the  time 
the  note  was  signed,  he  proposed  that  they  should  give  him  their 
receipt,  but  they  replied  that  it  would  be  as  well  to  give  a  note, 
which  was  done,  and  that  he  still  held  it.  Upon  this  evidence, 
Brigham,  J.,  ruled  that  the  note  declared  on  was  not  an  accommo- 
dation note.  The  defendant's  counsel  then  offered  evidence  that 
there  was  no  consideration  for  the  indorsement  of  the  note  in 
suit  to  the  plaintiff,  and  that  the  plaintiff  had  notice  of  the  facts 
above  stated ;  and  that  the  note  had  been  paid  to  the  plaintiff  by 
some  person;  but  by  whom  he  was  not  instructed.  The  court 
rejected  the  evidence,  and  directed  the  jury  to  find  a  verdict  for 
the  plaintiff,  which  they  did  ;  and  the  defendant  alleged  exceptions. 

W.  L.  Brozvn,  for  the  defendant. 
H.  C.  Hutchins,  for  the  plaintiff. 


498  Contract  of  Surety  or  Guarantor 

Bigelovv,  C.  J. — The  defendant  by  his  own  testimony  proved 
that  the  note  in  suit  was  given  for  a  valid  consideration.  Nothing 
is  better  settled  than  that  a  promissory  note  given  by  the  maker  in 
exchange  for  a  note  given  to  him  by  the  payee  is  for  a  good  con: 
sideration,  and  is  in  no  proper  sense  an  accommodation  note, 
although  made  for  the  mutual  convenience  of  theparties,  (Hig- 
gin'son  v.  Gray,  6  Met.  212).  Being  a  valid  note  on  which  the 
defendant  was  liable,  it  was  wholly  immaterial  whether  the  plain- 
tiff, as  indorsee,  took  it  for  value. 

If  the  evidence  of  payment  was  admissible,  for  the  reason 
that  it  was  not  objected  to  at  the  trial  on  the  ground  that  it  had 
not  been  duly  pleaded  in  the  defendant's  answer,  it  is  very  clear 
that  the  proof  offered  wholly  failed  to  substantiate  the  fact.  Evi- 
dence that  some  one  had  paid  the  amount  of  the  note  to  the  plain- 
tiff did  not  necessarily  show  that  the  note  was  paid,  so  as  to 
exonerate  the  defendant  from  his  liability  thereon.  It  was  equally 
consistent  with  the  fact  of  the  purchase  of  the  note  by  the  person 
who  paid  the  money,  as  with  its  payment,  and  the  burden  of  proof 
to  establish  payment  being  on  the  defendant,  it  failed  to  sustain 
the  allegations ;  a  fortiori  is  this  true,  where  it  appears,  as  in  the 
case  at  bar,  that  the  defendant  has  not  instructed  his  counsel  that 
the  money  was  paid  either  by  himself  or  on  his  behalf.  We  there- 
fore cannot  see  that  the  defendant  was  in  any  way  aggrieved  by 
the  rulings  of  the  court  at  the  trial. 

Exceptions  overruled. 

Am.  Nat.  Bank  v.  Junk  Bros.     (See  page  420.) 


Section  XIII — Contract  of  Surety  or  Guarantor.     §  65. 

Bickford  v.  Gibbs  et  al.  (1851),  8  Cush.  154. 
This  was  an  action  of  assumpsit  on  the  following  note : — 

"July  26th,  1845.  $100.  For  value  received,  I  promise  to 
pay  on  demand  to  Joseph  Bickford,  or  order,  one  hundred  dollars 
with  interest.  George  May." 

On  the  back  of  the  note  was  the  following  agreement,  signed 
by  the  defendants:  "We  guaranty  the  payment  of  the  within, 
waiving  demand  and  notice." 

The  writ  was  dated  the  23d  of  May,  1849 1  and  contained  the 
money  counts  only.     At  the  trial  in  the  court  of  common  pleas, 


BlCKFORD   V.    GlBBS    ET    AL.  499 

before  Byington,  J.,  the  plaintiff  put  in  evidence  the  foregoing 
note  and  agreement,  and  there  rested  his  case.  And  the  presid- 
ing judge  submitted  the  case  to  the  jury,  with  directions,  if  they 
found  for  the  plaintiff,  to  cast  interest  on  the  note.  The  jury 
returned  a  verdict  for  the  plaintiff;  and  the  defendants  alleged 
exceptions  to  the  instructions  of  the  judge. 

This  case  was  argued  and  decided  at  the  last  October  term. 

R.  B.  Caverly,  for  the  defendants. 
B.  F.  Butler,  for  the  plaintiff. 

Shaw,  C.  J. — Assumpsit  to  recover  the  amount  of  a  note 
given  by  one  May,  and  guaranteed  by  the  defendants. 

An  exception  is  now  taken,  that  this  guaranty  should  have 
been  specially  declared  on.  No  such  exception  was  taken  at  the 
trial;  had  it  been,  an  amendment  might  have  been  made;  the 
objection  comes  too  late. 

The  exception  is  also  taken,  that  as  the  guaranty  was  a 
contract  collateral  to  the  note,  a  distinct  consideration  should  be 
proved.  There  would  be  force  in  this  objection,  had  the  guaranty 
been  made  after  the  note  had  been  made,  delivered  and  received 
as  a  complete  contract.  But  when  the  guaranty  is  made  on 
the  note  before  its  delivery  by  the  maker  to  the  promisee,  it  must 
be  deemed  to  be  done  for  the  benefit  of  the  maker,  to  add  to  the 
strengtrTof  the  note  and  to  induce  the  promisee  to  take  it  and 
advance  his  money  on  it ;  and  no  other  consideration  is  necessary 
than  the  credit  thus  given  to  the  maker.  And  the  guaranty  being 
without  date,  and  there  being  no  direct  proof  of  any  time  at 
which  it  was  made,  we  think  the  court  were  right  in  leaving  it 
to  the  jury,  to  find  that  the  guaranty  was  simultaneous  with  the 
note  itself.  (  Benthall  v.  Judkins,  13  Met.  265). 

Supposing,  then,  that  the  defendants  were  regularly  bound  as 
guarantors,  and  thereby  assumed  an  obligation  somewhat  differ- 
ing from  that  of  either  sureties  or  indorsers,  what  was  that  obli- 
gation? This  question  has  been  much  discussed,  especially  since 
the  leading  case  of  Oxford  Bank  v.  Hayncs,  8  Pick.  423.  The 
principle  to  be  deduced  from  that  case,  and  the  Pennsylvania  case 
of  Gibbs  v.  Cannon,  9  S.  &  R.  202,  there  cited  with  approbation 
and  relied  on,  is  this:  That  in  order  to  maintain  an  action 
against  a  guarantor,  a  demand  of  payment  must  be  made  in  a 
reasonable  time  of  the  principal,  and  notice  of  non-payment  given 
to  the  guarantor ;  and  if  in  consequence  of  want  of  such  notice, 
the  guarantor  suffers  loss,  he  is  exonerated.  (Dole  v.  Young,  24 
Pick.  250) .    The  same  prompt  demand  and  notice,  as  are  required 


500  Contract  of  Surety  or  Guarantor 

to  charge  an  indorser,  arc  not  necessary;  and  if  the  circumstances 
of  parties  remain  the  same,  and  the  guarantor  suffers  no  loss  by 
delay,  demand  and  notice  at  any  time  before  action  brought,  will 
be  sufficient.  (Babcock  v.  Bryant,  12  Pick.  133).  Such  being  the 
obligation  of  the  defendants,  as  guarantors,  they  would  not  be 
liable  by  the  general  law,  without  proof  of  demand  and  notice. 
But  they  jraye_expresslv  agreed  to  waive  demand  and  notice,  and 
conventio  le?em  vincit.  The  effect  of  that  waiver  is,  to  put  the 
plaintiff  in  the  same  situation  as  if  he  had  proved  that  he  season- 
ably demanded  the  money  of  the  promisor,  who  did  not  pay  it, 
and  gave  reasonable  notice  thereof  to  the  defendants.  In  the 
absence  of  all  proof  on  the  part  of  the  defendants,  that  they  have 
suffered  any  loss  by  the  laches  of  the  plaintiff,  the  court  are  of 
opinion  that  this  proof  would  entitle  the  plaintiff  to  recover. 

Exceptions  overruled. 


Roberts  v.  Hawkins  ( 1888),  70  Mich.  566. 

Error  to  superior  court  of  Grand  Rapids.  (Burlingame,  J.) 
Assumpsit.     Defendant  brings  error.     Affirmed.     The  facts 
are  stated  in  the  opinion. 

N orris  &  N orris,  for  appellant. 

/.  C.  Fitz  Gerald  {Charles  Chandler,  of  counsel),  for  plaintiff. 

Long,  J  .—January  12,  1884,  one  Lyman  D.  Follett  made  his 
promissory  note  as  follows : 

"$1,000.  Grand  Rapids,  Mich.,  January  12,  1884. 

"One  year  after  date,  I  promise  to  pay  to  the  order  of  Helen 
M.  Roberts  one  thousand  dollars,  with  interest  at  eight  per  cent, 
per  annum.     Value  received. 

''Lyman  D.  Follett." 

And  defendant  signed  an  indorsement  on  the  back  thereof, 
as  follows : 

"For  value  received,  I  hereby  guarantee  the  payment  of  the 
within  note.  L.  E.  Hawkins." 

On  the  delivery  of  this  note  to  plaintiff,  she  paid  Follett 
$1,000.  January  8,  1885,  seven  days  before  this  note  became  due, 
Follett  paid  one. year's  interest;  and  neither  at  that  time,  nor 
at  the  maturity  of  the  note,  was  the  same  presented  to  Follett  or 
defendant  for  payment.     No  notice  of  non-payment  was  given 


Roberts  v.   Hawkins  501 

defendant  then  or  at  any  time  prior  to  June  8,  1887.    January  15, 

1886,  Follett  paid  the  interest  for  the  next  year,  and  January  17, 

1887,  for  the  year  following.  About  June  8,  1887,  the  note  being 
then  two  years  and  five  months  overdue,  it  was  first  presented  to 
defendant,  and  payment  demanded  and  refused.  August  13  this 
suit  was  brought. 

On  the  trial,  plaintiff,  having  proved  the  note  and  guaranty, 
and  its  non-payment,  rested.  Defendant  then  sought  to  make  his 
defense  as  pleaded,  and  offered  to  show — 

1.  That  he  was  an  accommodation  guarantor,  without  con- 
sideration or  security. 

2.  That,  at  or  about  the  maturity  of  the  note,  he  inquired 
of  the  maker  of  the  note  if  it  was  paid,  and  was  told  it  was. 

3.  That  neither  at  the  maturity  of  the  note,  nor  at  any  subse- 
quent time,  prior  to  June  8,  1887,  was  any  notice  of  the  non- 
payment of  this  note  given  to  defendant,  nor  any  demand  made  on 
him  for  the  payment  thereof. 

4.  That  at  the  maturity  of  this  note,  and  for  some  consider- 
able time  thereafter, — at  least  a  year, — Follett,  the  maker  of  the 
note,  was  solvent,  and  had  property  out  of  which  defendant  could 
have  procured  him  to  pay  the  note  or  obtained  security. 

5.  That  when  defendant,  on  June  8,  1887,  learned  of  the 
non-payment  of  this  note,  the  maker  was  insolvent,  out  of  the 
jurisdiction,  and  that  he  could  then  obtain  no  security  or  payment. 

The  court  directed  a  general  verdict  for  plaintiff  on  all  the 
counts  of  the  declaration.  Judgment  being  entered  on  the  verdict 
in  favor  of  plaintiff  for  the  amount  of  the  note  and  interest, 
defendant  brings  the  case  into  this  court  by  writ  of  error. 

The  declaration  contains  three  counts.  The  first  alleges  the 
guaranty,  demand  of  the  maker  at  maturity,  non-payment,  and 
notice  of  said  demand  and  non-payment  to  defendant  at  maturity. 

The  second  alleges  the  guaranty,  the  refusal  by  maker  to  pay 
at  maturity,  and  notice  to  defendant,  at  maturity,  of  maker's 
refusal. 

The  third  is  the  common  counts  in  assumpsit,  with  copy  of 
note  annexed,  and  an  alleged  indorsement  on  back  of  L.  E.  Haw- 
kins, without  any  guaranty  over  it. 

The  plea  is  the  general  issue,  with  notice  of  the  defense  of 
release  by  plaintiff's  failure  to  give  notice  of  non-payment  to 
defendant,  and  the  consequent  damage  and  loss  to  him  thereby. 

It  is  claimed  that  the  court  erred  in  receiving  the  note  and 
guaranty  in  evidence  under  the  third  count  in  plaintiff's  declar- 
ation, for  the  reason  that  the  note  and  guaranty  offered  were  not 


502  Contract  of  Surety  or  Guarantor 

the  note  and  guaranty  set  forth  in  that  count;  that  the  contract 
set  out  in  plaintiff's  third  count  was  that  defendant  had  indorsed 
his  name  in  blank  on  the  back  of  the  note,  not  payable  to  his 
order ;  and  that  this  would  make  him  a  maker  of  the  note,  and 
liable  as  such,  while  the  note  offered  had  a  guaranty  of  payment 
indorsed  thereon.  Defendant  claimed  that  this  was  a  variance, 
and  that  the  court  should  have  excluded  the  guaranty  under  this 
third  count,  and  confined  the  verdict  to  a  recovery  under  the  first 
two  counts. 

As  we  view  the  case,  however,  this  objection  has  no  force. 
The  plaintiff  being  entitled  to  recover  under  the  first  and  second 
counts  of  the  declaration,  the  defendant  was  not  prejudiced  in  the 
course  taken  by  the  court  in  not  withdrawing  all  consideration 
of  the  case  under  the  third  count.  The  declaration  was  sufficient 
in  the  first  two  counts  to  allow  a  recovery  thereunder. 

The  chief  error  complained  of  is  the  exclusion  of  the  entire 
defense,  and  the  direction  of  a  verdict  for  plaintiff.  On  the  trial 
the  plaintiff  proved  by  a  witness  the  application  for  the  loan,  the 
loaning  of  the  money,  the  giving  of  the  note  and  guaranty,  and, 
after  reading  the  note  and  guaranty  in  evidence,  rested.  The 
defendant  was  then  called  and  sworn  as  a  witness  in  his  own 
behalf,  and  was  asked  by  his  counsel : 

"Q.  When  that  note  became  due,  in  January,  1885, — Janu- 
ary i§} — was  any  notice  given  you  of  the  fact  that  it  remained 
unpaid  ?" 

To  this  question  counsel  for  plaintiff  objected,  that  the  same 
was  irrelevant  and  immaterial ;  that  the  defendant  was  not  an 
indorser  nor  guarantor  of  collection,  but  of  payment  of  the  note. 

Counsel  for  the  defendant  then  offered  to  show  by  the  witness 
that  he  had  no  notice  of  the  non-payment  of  the  note  prior  to  June 
8,  1887;  that  he  was  an  accommodation  guarantor  without  secur- 
ity ;  that,  at  or  near  the  maturity  of  the  note,  he  inquired  of  the 
maker,  and  was  informed  that  it  was  paid ;  that,  at  the  time,  the 
maker  of  the  note  was  solvent,  and  for  some  considerable  time 
thereafter, — probably  a  year, — and  that  the  defendant  could,  if  he 
had  any  knowledge  of  its  non-payment,  have  secured  himself,  or 
procured  the  maker  to  pay  it ;  that,  when  the  defendant  learned 
of  the  non-payment  of  the  note,  the  maker  was  insolvent,  and  out 
of  the  State,  and  no  security  could  have  been  obtained  by  the 
defendant ;  the  counsel  then  saying — 

"That  this,  of  course,  is  the  line  of  defense  marked  out  by 
the  notice  in  the  pleadings.  It  is  all  covered  by  my  brother's  argu- 
ment; and,  if  we  have  no  right  to  show  that  defense,  then,  of 


Roberts  v.   Hawkins 


503 


course,  there  remains  nothing  but  for  the  court  to  direct  a  verdict 
for  the  amount  of  the  note,  and  interest." 

The  court  sustained  the  objection,  and  directed  a  verdict  for 
plaintiff. 

In  considering  the  case,  the  defendant's  offer  to  prove  this 
state  of  facts  must  be  taken  as  true.  (Clay,  etc.,  Ins.  Co.  v.  Man- 
ufacturing Co.,  31  Mich.  356).  Under  this  offer  by  the  defendant, 
the  issue  is  made :  Is  a  person  not  being  a  party  to  a  promissory 
note,  who  at  its  date  and  before  delivery,  and  for  the  purpose  of 
having  a  loan  made  upon  the  strength  of  his  guaranty,  guarantees 
the  payment  of  such  note,  liable  thereon  in  case  the  note  is  not 
paid  at  maturity,  without  notice  of  non-payment  having  been  given 
to  him  by  the  holder  at  the  maturity  of  the  note,  or  within  a 
reasonable  time  thereafter;  or  in  case  notice  is  not  given,  and  no 
proceedings  taken  to  collect  the  note  from  the  maker,  and  the 
maker  of  the  note,  at  the  maturity  thereof,  was  solvent,  and  sub- 
sequently, and  before  suit  is  brought  on  the  guaranty,  becomes 
insolvent,  can  such  guarantor,  when  such  action  is  brought  against 
him,  set  up  such  insolvency  as  a  defense?  The  defense  being 
based  on  plaintiff's  laches  in  not  giving  notiqe  to  defendant  of  the 
non-payment  of  this  note  at  maturity,  and  the  consequent  damage 
to  defendant  thereby,  the  correctness  of  the  court's  ruling  depends 
on  whether  or  not  there  rested  on  the  plaintiff  the  duty  to  give 
such  notice  under  any  circumstances. 

The  defendant  claims  that  his  liability  existed  only  on  the 
happening  of  a  contingency  and  the  performance  of  a  condition  ; 
that  whether  or  not  that  contingency  happened,  or  condition  was 
performed,  was  matter  peculiarly  within  the  knowledge  of  the 
plaintiff,  and  not  within  his  own;  and  that  if  plaintiff  intended  to 
assert  the  performance  of  the  condition,  or  the  happening  of  the 
contingency,  whereby  alone  defendant  was  to  become  liable,  it  was 
her  duty  to  do  so  within  a  reasonable  time,  and,  in  any  event, 
before  the  maker  of  the  note  became  insolvent  and  a  fugitive  ;  that 
her  neglect  to  do  so,  and  the  damage  to  him  thereby,  has  released 
him  from  the  obligation  of  his  conditional  contract. 

The  position,  however,  of  a  guarantor  of  payment,  as  between 
him  and  the  maker  of  the  note,  is  that  of  a  surety.  Jt  is  a 
common-law  contract,  and  not .a  contract  ktpwnto  the  law-mer- 
chant. It  is  ah~aFsorute~promise  to  pay  if  the  maker  does  not_pay_, 
5nd  IheTight  6T~acHon  accrues~~against  the  guarantor  at  the 
moment  the  maker  fails  to  pay.  The  guarantor  would  not  be  dis- 
charged by  any  neglect  or  even  refusal  on  the  part  of  the  holder 
of__the  note  to  prosecute  the  principal,  even  if  the  maker  was 


504  Contract  of  Surety  or  Guarantor 

solvent  at  the  maturity  of  the  note,  and  subsequently  became 

--insolvent ;  and  the  fact  that  no  notice  of  tpn-payment  was  given 

v>_0^vojvvv_\  Ib-^  guarantor  at  the  ma.  "fjhe jjut_e..,_or  at  any  time,  hefore 

<\  l.:-ii:.'in|^uit.  would  not  atfect  the  riflhts  of  ihe  n"blder  ot  thenote 

,-;ain>t  the  guarantor.     Ihe  guarantor's  remedy  was  to  have  paid 

the  note,  and  taken  it  up,  and  himself  proceeded  against  the 

maker. 

A  guaranty  is  held  to  be  a  contract  by  which  one  person  is 
bound  to  another  for  due  fulfillment  of  a  promise  or  engagement 
of  a  third  party.     (2  Pars.  Cont.  3). 

The  contract  or  undertaking  of  a  surety  is  a  contract  by  one 
person  to  be  answerable  for  the  payment  of  some  debt,  or  the 
performance  of  some  act  or  duty,  in  case  of  the  failure  of  another 
person  who  is  himself  primarily  responsible  for  the  payment  of 
such  debt  or  the  performance  of  the  act  or  duty.  (3  Add.  Cont., 
§  1 11 1  ;  3  Kent,  Comm.  121  ;  Wright  v.  Simpson,  6  Ves.  734). 

In  the  case  of  Pain  v.  Packard,  13  Johns.  174  (decided  in 
1816),  it  was  held  that  if  the  surety  call  upon  the  creditor  to 
collect  the  debt  of  the  principal,  and  he  disregard  that  request, 
and  thereby  the  surety  is  injured,  as  by  the  subsequent  insolvency 
of  the  principal,  the  surety  was  thereby  discharged.  A  directly 
contrary  decision  was  given  by  Chancellor  Kent,  upon  argument 
and  full  consideration,  the  following  year.  (King  v.  Baldwin,  2 
Johns.  Ch.  554).  Two  years  later  the  last  decision  was  reversed 
by  the  court  of  errors  by  casting  vote  of  the  presiding  officer,  a 
layman,  and  against  the  opinion  of  the  majority  of  the  judges. 
(King  v.  Baldwin,  17  Johns.  384). 

In  the  case  of  Brown  v.  Curtiss,  2  N.  Y.  226  (decided  in 
1849),  the  action  was  brought  against  the  guarantor  of  a  prom- 
issory note.  On  the  trial  it  was  admitted  that  there  had  been  no 
demand  of  the  maker,  nor  any  notice  of  non-payment,  and  the 
note  was  dated  April  2,  1838,  and  payable  six  months  after  the 
date.  The  suit  was  brought  against  the  guarantor  in  September, 
1845.  The  defendant  offered  to  prove  that,  from  the  time  the 
note  fell  due  until  the  latter  part  of  1843,  the  maker  was  able  to 
pay  the  note;  that  he  then  failed,  and  was  insolvent  at  the  time 
of  the  commencement  of  the  suit,  and  still  remained  so.  This 
evidence  was  objected  to,  and  excluded,  and  verdict  directed  for 
plaintiff.    The  court  (at  p.  227)  says: 

"The  undertaking  of  the  defendant  was  not  conditional,  like 
that  of  an  indorser ;  nor  was  it  upon  any  condition  whatever.  It 
was  an  absolute  agreement  that  the  note  should  be  paid  by  the 
maker  at  maturity.    When  the  maker  failed  to  pay,  the  defendant's 


Roberts  v.   Hawkins  505 

contract  was  broken,  and  the  plaintiff  had  a  complete  right  of 
action  against  him.  It  was  no  part  of  the  agreement  that  the 
plaintiff  should  give  notice  of  the  non-payment;  nor  that  he 
should  sue  the  maker,  or  use  any  diligence  to  get  the  money  from 
him.     *     *  l'roof  that  when  the  note  became  due,  and  for 

several  years  afterwards,  the  maker  was  abundantly  able  to  pay, 
and  that  he  had  since  become  insolvent,  would  be  no  answer  to 
this  action.  The  defendant  was  under  an  absolute  agreement  to 
see  that  the  maker  paid  the  note  at  maturity.    *     * 

"If  the  defendant  wished  to  have  him  sued,  he  should  have 
taken  up  the  note,  and  brought  the  suit  himself.  The  plaintiff  was 
under  no  obligation  to  institute  legal  proceedings." 

The  weight  of  authority,  both  in  this  country  and  in  England, 
sustains  this  doctrine,  and  we  think  with  much  good  reason. 
(Bellows  v.  Lord!,  5  Pick.  310;  Davis  v.  Huggins,  3  N.  H.  231 ; 
Page  v.  Webster,  15  Me.  249;  Dennis  v.  Rider,  2  McLean,  451). 

In  Train  v.  Jones,  11  Vt.  446,  it  is  said: 

"An  absolute  guaranty  that  the  debt  of  a  third  person  shall 
be  paid,  or  that  he  shall  pay  it,  imposes  the  same  obligation  upon 
the  guarantor.  In  either  case,  it  is  an  absolute  guaranty  of 
the  sum  stipulated,  and  the  creditor  is  not  bound  to  use  diligence, 
or  to  give  reasonable  notice  of  non-payment."  (Noyes  v.  Nichols, 
28  Vt.  174). 

In  Bloom  v.  Warder,  13  Neb.  478  (14  N.  W.  Rep.  396), 
which  was  an  action  against  the  guarantors  of  payment  of  a 
promissory  note,  the  court  says: 

'This  is  an  absolute  contract,  for  a  lawful  consideration,  that 
the  money  expressed  in  the  note  shall  be  paid  at  maturity  thereof 
at  all  events,  and  depends  in  no  degree  upon  a  demand  of  payment 
of  the  maker  of  the  note,  or  any  diligence  on  the  part  of  the 
holder." 

Mere  passiveness  on  the  part  of  the  holder  will  not  release  the^ 
gu a rantor,  even  if  the  maker  of  the  note  was  solvent  at  its  matur- 
ity, and  tnereaher~~became  insolvent.  (Breed  v.  Hill  house,  7 
Conn.  528 ;  Bank  v.  Hopson,  53  Conn.  454  [5  Atl.  Rep.  601]  ;  Fos- 
ter v.  Tolleson,  13  Rich.  Law,  33;  Machine  Co.  v.  Jones,  61  Mo. 
409;  Barker  v.  Scudder,  56  id.  276:  Norton  v.  Eastman,  4  Greenl. 
521  ;  Brown  v.Citrtiss,  2  N.  Y.  225  ;  Allen  v.  Rightnierc.  20  Johns. 
365;  Bank  v.  Sinclair,  60  N.  H.  100;  Gage  v.  Bank,  79  111.  62: 
Hungerford  v.  O'Brien,  37  Minn.  306  [34  X.  W.  Rep.  161I). 

It  follows  that,  this  being  an  absolute  undertaking  on  the  part 
of  the  defendant  as  guarantor  to  pay  the  amount  of  this  note  at 


506  Contract  of  Surety  or  Guarantor 

maturity  in  the  event  of  the  default  of  payment  by  the  principal, 
the  guarantor  could  not  demand  any  diligence  on  the  part  of  the 
holder  of  the  note  to  collect  the  same  from  the  principal.  It  was 
his  duty  to  perform  his  contract, — that  is,  to  pay  the  note  upon 
default  of  the  principal ;  and  it  is  no  answer  for  him  to  say  that  the 
principal  was  solvent  at  the  maturity  of  the  note,  and  that  the  same 
could  then  have  been  collected  of  him  by  the  holder,  and  that  he 
has  since  become  insolvent.  If  he  wishedto  protect  himself 
against  loss,  he  should  have  kept  his  engagement  with  the  holder 
of  the  note,  paid  it  upon  default  of  the  principal,  taken  up  the  note, 
and  Himself  prosecuted  theparty  for  whose  faithful  performance^ 
oflhe  corTtract  he  became  liable. 

The  court  properly  directed  the  verdict  for  the  plaintiff ; 
and  the  judgment  of  the  court  below  must  be  affirmed, 
with  costs.  v  -. 

The  other  justices  concurred.         "^J*    (^-^^ 


TITLE  III. 

Rights  of  the  Holder. 
right  to  sue  and  receive  payment.  §  53. 

Haysv.  Hathorn  ct  al.  (1878),  74  N.  Y.  486. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  third  judicial  department,  affirming  a  judgment  in 
favor  of  plaintiff,  entered  upon  a  decision  of  the  court  on  trial 
without  a  jury.     (Reported  below,  10  Hun,  511). 

This  action  was  upon  a  promissory  note,  alleged  in  the  com- 
plaint to  have  been  made  by  the  firm  of  Hathorn  &  Southgate, 
payable  to  the  order  of  defendant,  Frank  H.  Hathorn.  and  by  him 
indorsed  and  transferred  to  plaintiff. 

The  facts  appear  sufficiently  in  the  opinion. 

Chas.  S.  Lester,  for  appellants. 
John  R.  Putnam,  for  respondent. 

Hand,  J. — In  their  answer,  the  defendants  denied  that  the 
note  on  which  the  action  was  brought  was  ever  transferred  to 
the  plaintiff  or  that  he  was  the  legal  owner  or  holder  thereof. 
They  further  denied  that  the  plaintiff  was  the  real  party  in  inter- 
est; alleged  that  the  Saratoga  County  Bank  was  the  real  party 
in  interest  and  the  owner  and  holder  and  should  be  the  plaintiff 
and  that  the  note  was  duly  transferred  to  it  instead  of  to  the 
plaintiff. 

Upon  the  trial,  the  plaintiff  having  produced  the  note  which 
was  payable  to  the  order  of  F.  H.  Hathorn  and  indorsed  in  blank 
by  him,  rested.  The  defendants  then  offered  to  prove  that  the 
note  "was  not  the  property  of  the  plaintiff,  that  the  same  was 
never  transferred  to  him.  that  he  was  not  the  real  party  in  interest, 
that  the  note  was  the  property  of  the  Savings  Bank  who  is  the  real 
party  in  interest."  The  evidence  was  objected  to  by  the  plaintiff 
as  immaterial  and  was  excluded.  This  ruling  I  think  was  errone- 
ous and  renders  necessary  a  reversal  of  the  judgment. 

Under  the  answer  and  this  offer,  the  defendants  unquestion- 


508  Rights  of  the  Holder 

ably  proposed  to  show  substantially  that  the  plaintiff  had  no  title 
legal  or  equitable  to  the  note  and  no  right  as  owner  to  its  posses- 
sion. This  might  have  been  done  by  proving  that  he  was  the  mere 
finder  or  the  unlawful  possessor,  or  that  the  right  to  its  posses- 
sion and  ownership  was  in  the  bank  to  whom  they  were  liable 
thereon,  or  in  some  other  way.     This  they  had  a  right  to  show. 

It  may  be  that,  had  their  offer  been  admitted,  they  would  have 
produced  in  fact  no  evidence  to  sustain  it  or  prevent  a  recovery, 
but  in  considering  the  validity  of  their  exception  to  the  exclusion, 
we  must  assume  that  the  evidence  would  have  fully  covered  the 
propositions  contained  in  the  offer.  And,  as  remarked  in  the 
dissenting  opinion  in  the  court  below,  "unless  the  defendants  are 
to  be  precluded  altogether  from  giving  any  evidence  of  a  matter 
confessedly  issuable,  I  do  not  see  how  this  offer  could  be  rejected." 

The  cases  relied  upon  as  justifying  the  exclusion  of  the  evi- 
dence do  not  go  that  length.  Tn  Cummings  v.  Morris  (25  N.  Y., 
625)  it  was  held  that  the  maker  of  a  note  could  not  defeat  the  plain- 
tiff, not  a  payee,  by  proof  that  the  consideration  of  the  transfer  to 
him  was  contingent  upon  his  collecting  the  note.  Such  plaintiff  was 
declared  to  be  the  real  party  in  interest  on  the  express  ground  that 
the  transfer  was  complete  and  irrevocably  vested  in  him  the  title 
to  the  note.  In  City  Bank  v.  Perkins  (29  N.  Y.,  554)  there  was 
no  question  of  exclusion  of  evidence,  but  all  the  circumstances 
being  proved,  it  was  held  that  where  the  cashier  of  a  bank  holding 
commercial  paper,  pledged  it  "duly  indorsed"  to  the  plaintiff  as 
security  for  a  loan  by  the  plaintiff  to  his  bank,  and  it  had  been 
actually  transmitted  under  his  direction  to  the  plaintiff  so  indorsed, 
it  was  no  defense  to  one  admitting  his  liability  upon  such  paper 
to  show  lack  of  authority  in  the  cashier  alone  to  contract  a  loan 
for  the  bank ;  or  the  fraudulent  diversion  by  him  of  the  funds 
received  from  the  plaintiff  on  such  loan.  Some  remarks  in  the 
opinion  in  that  case,  not  necessary  to  the  decision,  are  perhaps  too 
broad  to  be  entirely  approved,  but  it  is  fully  conceded  in  it  that 
proof  that  the  plaintiff  had  no  right  whatever  to  the  possession 
but  was  a  mere  finder  or  had  obtained  it  by  some  "positive  breach 
of  law"  would  be  a  defense. 

Brown  v.  PenHcld  (36  N.  Y.,  473)  holds  merely  that  proof 
by  the  party  liable  on  a  bill,  of  gross  inadequacy  of  the  consider- 
ation for  the  transfer  of  such  bill  to  the  plaintiff  does  not  impeach 
the  validity  of  such  transfer  as  to  the  party  so  liable. 

In  Allen  v.  Brown  (44  N.  Y.,  228)  it  was  decided  that,  as 
against  the  plaintiff  holding  legal  title  to  the  claim  by  written 
assignment  valid  upon  its  face,  the  debtor  cannot  raise  the  ques- 


Hays  v.  Hathorn  et  al.  509 

tion  as  to  the  consideration  for  such  assignment  or  the  equities 
between  the  assignor  and  assignee. 

In  Eaton  v.  Alger  (47  N.  Y.,  345)  the  note  being  payable  to 
bearer  and  produced  by  the  plaintiff  upon  the  trial,  it  was  proved 
that  the  payee  had  delivered  it  to  the  plaintiff  upon  his  undertak- 
ing to  collect  it  at  his  own  expense  and  pay  to  such  payee  upon  its 
collection  a  certain  sum  of  money.  This  was  held  to  show  suffi- 
ciently that  the  plaintiff  and  not  the  payee  was  the  real  party  in 
interest  under  the  Code. 

Sheridan  v.  The  Mayor  (68  X.  Y.,  30)  reiterates  the  doctrine, 
that,  as  against  the  debtor,  the  plaintiff  holding  a  written  assign . 
ment  of  the  claim  to  himself  valid  on  its  face,  obtained  the  legal 
title  and  was  the  real  party  in  interest  notwithstanding  the  fact 
that  the  assignment  was  without  consideration  and  merely  color- 
able as  between  him  and  the  original  claimant.  Such  assignment 
is  expressly  declared  to  protect  the  debtor  paying  the  assignee 
against  a  subsequent  suit  by  the  assignor. 

In  Gage  v.  Kendall  (15  Wend.,  640)  the  fact  that  the  prose- 
cution of  the  note  was  by  its  owner  and  holder  in  the  name  of  the 
plaintiff  a  stranger  to  it,  without  his  consent  or  knowledge,  was 
sought  to  be  set  up  as  a  defense,  but  it  was  ruled  out  on  the 
ground  that  the  nominal  plaintiff  need  have  no  title  to  or  interest 
in  the  paper  sued  upon.  We  apprehend  the  Code  has  changed  this 
and  that  such  facts  would  now  be  fatal  to  an  action.  Such  a 
plaintiff  could  not  in  any  view  be  the  real  party  in  interest.  Indeed 
he  would  not  even  have  manual  possession  of  the  paper. 

From  this  glance  at  the  cases,  it  appears  that  it  is  ordinarily 
no  defense  to  the  party  sued  upon  commercial  paper,  to  show  that 
the  transfer  under  which  the  plaintiff  holds  it  is  without  consid- 
eration or  subject  to  equities  between  him  and  his  assignor,  or 
colorable  and  merely  for  the  purpose  of  collection,  or  to  secure  a 
debt  contracted  by  an  agent  without  sufficient  authority.  It  is 
sufficient  to  make  the  plaintiff  the  real  party  in  interest,  if  he  have 
the  legal  title  either  by  written  transfer  or  delivery,  whatever  may" 
be  the  equities  between  him  and  his  assignor.  But  to  be  entitled 
to  sue,  he  must  now  have  the  right  of  possession  and  ordinarily  be 
the  legal  owner.  Such  ownership  may  be  as  equitable  trustee,  it 
may  have  been  acquired  without  adequate  consideration,  but  must 
be  sufficient  to  protect  the  defendant  upon  a  recovery  against  him 
from  a  subsequent  action  by  the  assignor. 

As  we  understand  the  scope  of  the  offer  in  the  present  case, 
it  went  to  entirely  disprove  any  ownership  or  interest  whatever  or 
even  right  to  possession  as  owner  in  the  plaintiff.    It  should  there- 


510  Holder  in  Due  Course 

fore  have  been  admitted.  It  may  be  true  that  the  plaintiff,  if  this 
note  had  been  delivered  to  him  with  the  intent  to  transfer  title, 
might  have  lawfully  overwritten  the  blank  indorsement  with  a 
transfer  to  himself ;  it  is  also  true  that  the  production  of  the  paper 
by  him  was  prima  facie  evidence  that  it  had  been  delivered  to  him 
bv  the  payee  and  that  he  had  title  to  it.  but  the  defendants'  offej: 
was  precisely  to  rebut  this  very  presumption  and  for  aught  that 
we  can  know  the  evidence  under  it  would  have  done  so. 

The  judgment  must  be  reversed,  and  a  new  trial  ordered, 
costs  to  abide  the  event. 

All  concur,  except  Miller  and  Earl,  JJ.,  absent. 

Judgment  reversed. 


~y^  *-*\; 


HOLDER  IN  DUE  COURSE.  §  54- 

The  Third  Nat.  Bank  v.  Lange  ct  al.  (18/p),  51  Md.  138,  34  Am. 

Rep.  304. 

Appeal  from  the  Circuit  Court  of  Baltimore  City. 

This  was  a  proceeding  in  equity  by  the  appellee,  Lange, 
against  the  appellant  and  others,  to  enjoin  the  appellant  from  col- 
lecting or  attempting  to  collect  a  promissory  note,  purchased  by 
it,  but  equitably  belonging  to  the  appellee  Lange,  or  from  protest- 
ing it,  or  taking  any  further  steps  in  regard  thereto.  The  injunc- 
tion ordered  to  be  issued,  was  served  upon  the  appellant  three 
days  before  the  maturity  of  the  note.  The  case  is  further  stated 
in  the  opinion  of  the  Court. 

Henry  Stockbridgc,  for  the  appellant. 
Thomas  R.  Clendinen,  for  the  appellee,  Lange. 

Brent,  J.,  delivered  the  opinion  of  the  Court. 

The  note,  about  which  this  case  has  arisen,  is  as  follows : 

"$1100.  Baltimore,  Feby.  8th,  1876. 

"Twelve  months  after  date  we  promise  to  pay  to  the  order  N. 
W.  Watkins,  trustee,  eleven  hundred  dollars  with  interest,  value 
received.  Flynn  &  Emerich." 

The  names  of  "N.  W.  Watkins,  trustee,"  and  "J.  Regester  & 
Sons,"  are  endorsed  upon  it. 

This  note  was  given  for  the  purchase  of  property  sold  by  N. 
W.  Watkins,  as  trustee  under  a  decree  of  the  Circuit  Court  of 
Baltimore  City,  and  is  for  one  of  the  deferred  payments,  as 
authorized  by  that  decree.     At  the  time  of  its  delivery  to  the 


Third  National  Bank  v.   Lange  et  al.  511 

trustee,  it  was  endorsed  by  J.  Regester  &  Sons  as  securities  for 
the  drawers, — the  terms  of  sale  requiring  the  deferred  payments 
to  be  secured  in  that  form. 

Subsequently  N.  W.  Watkins  wrote  above  the  names  of  J. 
Regester  &  Sons  the  endorsement  "N.  W.  Watkins,  Trustee,"  and 
applied  to  the  Union  Hanking  Company  to  buy  the  note,  offering 
to  sell  it  for  12  per  cent.  off.  The  Banking  Company  not  being 
willing  to  buy  it.  its  cashier  offered  to  sell  it  for  Watkins,  and 
placed  it  in  the  hands  of  a  bill  broker  for  that  purpose.  After 
getting  into  the  hands  of  a  second  bill  broker  it  was  taken  by  him 
to  The  Third  National  Bank,  the  appellant,  and  offered  to  it  for 
sale.  The  bank  bought  it  from  the  broker  at  nine  per  cent,  off, 
and  the  proceeds  seem  to  have  been  appropriated  by  Watkins. 

The  appellees  claim  that  the  bank  acquired  no  right  to  the 
note,  while  it  is  contended  for  the  bank  that  the  note  is  embraced 
in  the  class  of  commercial  paper,  and  was  acquired  by  it  in  a 
usual  and  proper  way. 

Without  intending  to  decide  upon  the  right  of  a  national 
bank  to  purchase  paper,  as  the  question  does  not  necessarily  arise 
in  this  case,  we  do  not  think  the  note  in  question  is  within  the 
class  t.if  paper  known  as  commercial  paper.  Although  like  it  in. 
general  form,  the  fact  that  it  isjpayable  to  the  order  of  Watkins, 
trustee,  restricts  its  free  AHrcuralTon^  and  excepts  it  from  some  of 
the  rules  governing  commercial  paper. 

No  doctrine  is  better  settled,  than  that  a  trustee  has  no  power 
to  sell  anddispose  of  trust  property  for  his  own  use  and  at  his__ 
own  mere  will.  One  who  obtains  it  from  him  or  through  him  with 
actual  or  constructive  notice  of  the  trust,  can  acquire  no  title, 
and  it  may  be  recovered  by  suitable  proceedings  for  ihe  benefit 
of  the  cestui  que  trust.  If  there  are  circumstances  connectedwith^ 
the  purchase  which  reasonably  indicate  that__truj;t  property  js_ 
being  dealt  with,  they  will  hx  upon  the  purchaser  notice  of_theT 
trust,  and  it  he  tails  to  make  inquiry  about  the  title  he  is  getting, 
ft  is  nis  own  fault  jind  he  must  suffer  the  consequences  of  his  own 
neglect. 

The  general  doctrine  is  stated  in  1  Story's  Eq.  Juris.,  sec.  400, 
where  it  is  said :  ''for  whatever  is  sufficient  to  put  a  party  upon 
inquiry,  (that  is,  whatever  has  a  reasonable  certainty  as  to  time, 
place,  circumstances  and  persons,)  is,  in  equity,  held  to  be  good 
notice  to  bind  him."  A  large  number  of  authorities  is  referred  to 
in  the  note,  and  it  is  unnecessary  to  allude  to  them  more  particu- 
larly. 

In  the  case  of  the  present  note,  it  cannot  be  read  understand- 


512  Holder  in  Due  Course 

ingly  without  seeing  upon  its  face  that  it  is  connected  with  a  trust 
and  is  part  of  a  trust  fund.  It  was  the  duty  of  the  bank,  before 
purchasing  it,  to  have  made  enquiry  into  the  right  of  the  trustee 
to  dispose  of  it.  But  this  it  wholly  failed  to  do,  and  as  it  turns 
out,  he  was  disposing  of  the  note  in  fraud  of  his  trust,  the  bank 
must  suffer  the  consequences  of  the  risk  it  assumed. 

In  the  case  of  Shanv  v.  Spencer,  and  others,  ioo  Mass.,  382, 
the  question  is  considered,  whether  the  addition  of  the  word 
trustee  to  the  name  alone  is  sufficient  to  indicate  a  trust  and  put 
a  party  upon  inquiry.  That  was  the  case  of  stock  certificates, 
which  were  pledged  by  the  holder  as  collaterals  for  certain  accept- 
ances. The  certificates  in  question  were  in  the  name  of  E.  Carter, 
trustee.  They  were  by  him  endorsed,  and  one  of  the  questions 
presented  was  whether  the  word  trustee  was  sufficient  to  put  the 
holders  upon  inquiry,  and  thereby  affect  them  with  notice  of  the 
trust.  The  Court  says  on  page  393,  "The  rules  of  law  are  pre- 
sumed to  be  known  by  all  men ;  and  they  must  govern  themselves 
accordingly.  The  law  holds  that  the  insertion  of  the  word  'trus- 
tee' after  the  name  of  a  stockholder  does  indicate  and  give  notice 
of  a  trust.  No  one  is  at  liberty  to  disregard  such  notice  and  to 
abstain  from  inquiry,  for  the  reason  that  a  trust  is  frequently 
simulated  or  pretended  when  it  really  does  not  exist.  The  whole 
force  of  this  offer  of  evidence  is  addressed  to  the  question, 
whether  the  word  'trustee'  alone  has  any  significance  and  does 
amount  to  notice  of  the  existence  of  a  trust.  But  this  has  hereto- 
fore been  decided,  and  is  no  longer  an  open  question  in  this  com- 
monwealth." And  upon  the  ground  that  pledgees  took  the  certi- 
ficates with  this  notice  of  the  trust,  it  was  held  that  they  could 
not  retain  them  against  the  equitable  owner,  inasmuch  as  Carter, 
the  trustee,  had  no  authority  to  use  or  dispose  of  them  for  any 
such  purpose. 

The  argument,  that  the  bank  should  not  be  deprived  of  its 
action  against  J.  Regester  &  Sons,  whose  endorsement  it  is 
claimed  guarantees  the  preceding  endorser,  would  be  entitled  to 
weight  but  for  the  facts  of  the  case.  While  the  rule  is  undoubted 
that  a  subsequent  endorser  guarantees  the  preceding  endorsement, 
it  cannot  apply  to  a  case  where  in  fact  there  was  no  previous 
endorsement  at  the  time  of  the  alleged  second  endorsement.  The 
obligations  of  J.  Regester  &  Sons  upon  this  note  were  those  of 
original  makers,  Ives  v.  Boslcy,  35  Md.,  263;  Good  v.  Martin, 
(Sup.  Court  U.  S.)  Am.  L.  Reg.,  Feb'y,  1878,  as  is  clearly  shown 
by  the  proof  in  the  case.  Their  name  was  placed  upon  the  note 
as  security,  and  they  cannot  be  held  to  a  contract  of  guaranty 


Fisher  v.  Leland  et  al.  513 

into  which  they  never  entered.  That  parol  evidence  is  admissible 
to  show  the  character  in  which  they  stand  relative  to  this  note  is 
settled  by  the  Supreme  Court  of  the  United  States  in  the  case  of 
Good  v.  Martin,  just  referred  to. 

We  are  therefore  very  clearly  of  opinion,  that  the  bank  can- 
not hold  Regester  &  Sons  liable  as  guarantors.  When  the  note 
is  paid,  their  liability  ceases. 

We  find  no  error  in  the  decree  of  the  court  below,  and  it  will 
be  affirmed. 

Decree  affirmed  with  costs,  and  case  remanded 


Fisher  v.  Leland  et  al.  (1849),  4  Cush.  456. 

This  was  an  action  of  assumpsit  on  a  negotiable  promissory 
note,  made  by  the  defendant  Leland,  as  principal,  and  the  other 
defendants,  Fogg  and  Harrington,  as  sureties,  to  one  James  Luke, 
Jr.,  or  order,  and  by  him,  before  maturity,  indorsed  to  the  plain- 
tiff. 

The  defendant  pleaded  the  general  issue,  and  filed  a  specifica- 
tion of  defence,  in  which  they  set  forth  that  they  should  undertake 
to  prove  that  the  note  relied  on  by  the  plaintiff  was  obtained  by 
Luke,  the  payee,  by  fraud  and  fraudulent  misrepresentation,  and 
without  consideration ;  of  all  which  the  plaintiff  had  notice  when 
he  took  the  note.    The  defendants  further  alleged,  in  their  speci- 
fications, that  Leland  and  Luke,  who  were  formerly  partners,  dis- 
solved their  partnership  in  March,  1847,  Luke  assigning  to  Leland  J^W  ojib^ 
his  interest  in  the  concern,  and  Leland  giving  Luke  the  note  iruj?^jv1t    •**>-*- 
question,  with  others,  and  a  bond  to  pay  the  liabilities  of  the  firm  :   v^-*_  n^*-*~^ 
that  Luke  kept  the  books  of  the  partnership,  and,  at  the  time  of  X^^^v^^-^^ 
the  dissolution,  knowing  that  Leland  relied  on  his  statements,  rep- v  ^Sm>^aa-».  ^ 
resented  to  him  that  the  assets  of  the  concern  were  greater  and 
the  liabilities  much  less  than  they  were  in  fact,  that  he  also  with—* 
held    from    Leland   knowledge   of  the    fact   that   he.   Luke,   had 
appropriated  to  himself  certain  funds  of  the  concern  and  the  pro- 
ceeds of  certain  debts  due  the  same ;  that  he  thus  induced  Leland 
to  give  the  notes,  of  which  the  note  in  question  was  one,  and  the 
bond  above  mentioned;  and  that  herein  consisted  the  fraud,  mis- 
representation, and  want  of  consideration,  of  which  the  plaintiff 
had  notice. 

At  the  trial,  before  Byington.  J.,  in  the  court  of  common 
pleas,  the  defendants  offered  evidence  that  the  plaintiff  took  the 


514  Holder  in  Due  Course 

note  with  notice  that  it  was  obtained  by  fraud,  and  would  not  be 
paid  by  any  party  to  it.  There  was  no  evidence  of  the  death  of 
Luke,  but  the  defendants  then  offered  to  prove  by  his  admissions 
made  while  the  note  was  held  by  him,  and  before  its  indorsement 
to  the  plaintiff,  that  he  made  such  representations.  To  this  evi- 
dence the  plaintiff  objected,  but  the  judge  admitted  it. 

In  order  to  show  knowledge  on  the  part  of  Luke  of  the  falsity 
of  these  representations,  and  for  other  reasons,  the  defendants 
offered  to  prove  specific  acts  of  fraud  committed  by  Luke,  against 
Leland,  such  as  misappropriating  the  assets  of  the  firm,  altering 
the  books  of  account,  &c,  before  and  at  the  time  of  the  making  of 
the  note,  and  as  inducements  thereto.  To  this  evidence  the  plain- 
tiff objected,  but  the  court  admitted  it. 

The  jury  returned  a  verdict  for  the  defendants,  and  the  plain- 
tiff thereupon  alleged  exceptions  to  the  above  rulings. 

B.  F.  Jacobs,  for  the  plaintiff. 
G.  M.  Brown,  for  the  defendants. 

Shaw,  C.  J.  The  single  question  is,  whether,  after  the 
defendant  had  proved  that  the  plaintiff  took  the  note  in  question 
by  indorsement  before  it  was  due,  but  with  notice  that  the  prom- 
isors intended  to  defend  on  the  ground,  that  the  note  was  obtained 
by  the  payee  of  the  maker  by  fraud,  they  could  give  in  evidence 
the  fraudulent  acts  of  the  payee ;  and  whether  they  could  give  in 
evidence  the  admissions  and  confessions  of  the  payee,  whilst  he 
was  the  holder  of  the  note  and  before  the  indorsement,  to  prove 
such  fraud.  The  distinction  appears  to  be  this:  that  when  an 
indorsee  takes  a  bill  or  note,  by  indorsement,  before  it  is  due,  and 
without  notice  of  fraud  or  other  maters  of  defence,  he  takes  it  on_ 
an  independent  title  by  the  indorsement,  and  will  not  be  affected 
by  any  payment,  set-off,  fraudulent  consideration,  or  other  matter 
of  defence,  which  the  acceptor  or  promisor  might  have  had  ngainsr 
any  previous' holder  or  prior  party.  He  is  not  in  privity  with  such 
prior  party,  does  not  claim  under  him,  and  is  not  bound  by  the 
acts,  frauds,  or  admissions  of  any  such  prior  party.  And  in  order 
to  give  the  highest  credit  and  the  freest  circulation  to  negotiable 
securities,  transferred  by  indorsement,  in  favor  of  commerce,  this 
principle  is  held  with  great  firmness  and  strictness ;  and  by  a  series 
of  recent  decisions,  the  rule  upon  the  subject,  instead  of  being 
relaxed,  is  held  with  greater  strictness  than  formerly.  (O'Keefe  v. 
Dunn,  6  Taunt.  305 ;  Dunn  v.  O'Keefe,  5  M.  &  S.  282 ;  GUI  v. 
Cubitt,  3  B.  &  C.  466;  Goodman  v.  Harvey,  4  Ad.  &  El.  870;  Fos- 


Fisher  v.  Leland  et  al.  515 

ter  v.  Pearson,  I  ('.  M.  &  R.  849;  Arbouin  v.  Anderson,  1  Ad.  & 
El.  N.  S.  498). 

But  where  a  negotiable  note  is  found  in  circulation  after  it 
is  due,  it  carries  suspicion  on  the  face  of  it.  The  question  instantly 
arises,  Why  is  it  in  circulation, — why  is  it  not  paid?  here  is  some- 
thing wrong.  Therefore,  although  it  does  not  give  the  indorser 
notice  of  any  specific  matter  of  defence,  such  as  set-off,  payment, 
or  fraudulent  acquisition,  yet  it  puts  him  on  inquiry ;  he  takes 
only  such  title  as  the  indorser  himself  has,  and  subject  to  any 
defence  which  would  be  made,  if  the  suit  were  brought  by  the 
indorser.  The  note  does  not  cease  to  be  negotiable;  the  indorsee 
takes  a  title,  and  may  sue,  but  he  is  so  far  in  privity  with  his 
indorser  that  he  takes  only  his  title ;  and  if  the  defendant  could 
make  any  defence  against  a  suit  brought  by  such  indorser,  he  can 
make  it  against  the  indorsee. 

This  rule  is  settled  in  the  case  of  a  suit  by  an  indorsee  taking 
the  note  overdue,  by  a  series  of  authorities,  which  show  not  only 
that  such  defence  may  be  made,  but  that  it  may  be  proved  by 
the  same  evidence,  by  which  it  might  have  been  proved  if  the 
indorser  were  plaintiff,  to  wit,  the  admissions  of  such  indorser, 
made  whilst  he  was  the  holder.  (Sylvester  v.  Crapo,  15  Pick.  92 ; 
Borough  v.  White,  4  B.  &  C.  325 ;  Phillips  v.  Cole,  10  Ad.  &  El. 
106;  Beauehamp  v.  Parry,  1  B.  &  Ad.  89).  These  authorities 
might  be  multiplied  almost  indefinitely. 

But  the  indorsement  of  a  note  overdue  is  only  one  mode  of 
giving  the  indorser  notice,  that  there  is  some  matter  of  defence 
relied  on  ;  if  he  has  express  notice,  he  may  take  it  and  may  sue 
the  note,  but  he  takes  subject  to  such  defence  as  the  defendant 
might  make  against  the  indorser. 

The  case  in  an  early  volume  of  the  reports  of  this  court, 
Wilson  v.  Holmes,  5  Mass.  543,  was  one  where  the  plaintiff  had 
notice  in  the  form  of  the  indorsement,  which  was:  "Pay  T.  \Y.. 
or  order,  for  our  use,  value  received  in  account."  See  Humphries 
v.  Blight,  4  Dall.  370;  White  v.  Xubling,  11  Johns.  128.  In  the 
early  leading  case  on  this  subject,  Brozvn  v.  Dai'ies,  3  T.  R.  80, 
83,  Lord  Kenyon,  who  was  not  disposed  to  go  quite  the  length 
of  the  doctrine  held  by  Mr.  Justice  Buller,  says  :  "I  agree.  &c,  if 
it  appears  on  the  face  of  the  note  to  have  been  dishonored,  or  if 
knowledge  can  be  brought  home  to  the  indorsee  that  it  had  been 
so."  In  a  note  to  the  same  case,  in  Taylor  v.  Mather,  where  the 
defence  was,  that  the  note  was  obtained  by  fraud,  and  where  it 
was  negotiated  when  overdue,  Buller,  J.,  says:  "Such  a  note  is 
negotiable,  but  if  there  are  any  circumstances  of  fraud   in  the 


516  Holder  in  Due  Course 

transaction,  I  have  always  left  it  to  the  jury,  on  the  slightest 
evidence,  to  presume  that  the  indorsee  was  acquainted  with  the 
fraud." 

It  seems,  therefore,  that  it  is  not  that  the  indorsement  of  a 
note  after  it  is  due  is,  per  se,  such  as  to  render  the  note  void,  or 
todefeat  the  right  of  the  plaintiff ;  but  if  there  are  anterior  circum- 
stances, such  as  fraud  in  obtaining  the  note,  the  fact  that  the, 
indorsee  takes  it  when  overdue,  is  a  circumstance  of  suspicion, 
which  should  put  him  on  inquiry,  and  leads  to  a  presumption  that 
he  knew,  or  by  inquiry  might  know,  of  such  fraud,  and  is  deemed 
constructive  notice  of  it.  It  identifies  the  title  of  the  indorsee 
with  that  of  the  indorser.  This  being  so,  actual  notice  of  such, 
fraud,  brought  home  to  the  knowledge  of  the  indorsee  at  the  time 
he  took  the" note  by  indorsement's  equally  "availing  to  prove  that 
he  is  not  a  bona  fide  holder,  and  to  give  the  detendant  the  same 
ground  ~bi  detence  as  he  would  have  had  against  the  indorser. 

Exceptions  overruled. 

^  M- 

Kelley  v.  Whitney  et  al.  (1878),  45  Wis.  no. 

Appeal  from  the  Circuit  Court  for  Brown  county. 
The  case  is  thus  stated  by  Mr.  Justice  Cole: 

This  was  an  action  to  foreclose  a  mortgage  originally  given 
upon  lot  number  30,  and  the  south  34  feet  of  lot  number  29,  in 
Fort  Howard.  The  mortgage  was  executed  by  Bridget  Whitney 
and  Edwin  Whitney  to  Joel  S.  Fisk  on  the  25th  of  February, 
1873,  to  secure  the  payment  of  a  promissory  note  of  that  date 
given  by  the  mortgagors  to  Fisk  or  order,  for  $233.03  in  six 
years  from  date,  with  interest  payable  annually  thereon  at  the 
rate  of  ten  per  cent  per  annum.  J.  S.  Curtis,  for  a  valuable  con- 
sideration, purchased  the  note  and  mortgage  of  Fisk  on  the  nth 
of  July,  1874.  The  plaintiff  derives  title  from  Curtis  by  an  assign- 
ment bearing  date  May  20,  1876.  When  the  note  and  mortgage 
came  to  plaintiff's  hands,  the  principal  was  not  due,  but  there 
was  interest  overdue  and  unpaid.  The  defendants  Bridget  and 
Edwin  Whitney  answered,  alleging,  among  other  things,  payment 
in  full  to  plaintiff's  assignor  on  or  about  the  25th  of  June,  1874. 
under  and  in  pursuance  of  an  agreement  set  out  in  the  answer. 
The  defendant  Goodenough  answered  separately,  alleging  pay- 
ment of  the  mortgage  previous  to  the  assignment  to  the  plaintiff, 
and  further  that  he  was  the  owner  of  a  mortgage  given  by  Bridget 
and  Edwin  Whitney,  June  26,  1874,  on  a  portion  of  the  mort- 


Kelley  v.  Whitney  et  al.  517 

gaged  premises,  to  wit,  the  north  ten  feet  of  lot  number  30,  and 
the  south  34  feet  of  lot  29,  being  a  portion  of  the  mortgaged 
premises  remaining  and  covered  by  plaintiff's  mortgage,  after 
Curtis  had  released  the  south  45  feet  of  lot  30  therefrom  while 
he  held  the  mortgage.  The  agreement  set  out  in  the  answers, 
under  which  it  was  claimed  that  the  note  and  mortgage  were  paid, 
was  never  recorded;  the  plaintiff  had  no  knowledge  of  its  exist- 
ence when  he  purchased  the  securities ;  nor  had  he  any  actual 
notice  of  any  other  fact  affecting  their  validity,  except  the  fact 
that  interest  was  overdue  and  unpaid  when  they  were  transferred. 
The  circuit  court  found  that  the  note  and  mortgage  were  paid 
and  extinguished  while  in  the  hands  of  Curtis,  and  rendered 
judgment  for  the  defendants. 

Plaintiff  appealed  from  the  judgment. 

Tracy  &  Bailey,  for  appellant. 
L.  J.  Billings,  for  respondent. 

Cole,  J. — Can  the  plaintiff,  under  the  circumstances,  claim 
the  protection  which  the  law  affords  a  bona  fide  purchaser  of 
commercial  paper  for  value,  before  maturity?  The  learned  cir- 
cuit court,  in  obedience  to  the  decision  of  this  court  in  Hart  v. 
Stickney,  41  Wis.  630,  decided  that  the  plaintiff  took  the  note 
and  mortgage  as  dishonored  and  subject  to  equity,  because  install- 
ments of  interest  were  due  and  unpaid  when  they  were  trans- 
ferred. If  there  is  error  in  this  ruling  of  the  court  below — as 
we  are  well  satisfied  there  is, — it  is  an  error  for  which  this  court, 
and  not  the  circuit  court,  should  be  held  responsible.  When  the 
case  of  Hart  v.  Stickney  was  decided,  our  attention  was  not 
called  by  counsel,  and  we  entirely  overlooked  in  our  examination, 
the  previous  case  of  Boss  v.  Hezcitt,  in  the  15  Wis.,  260,  where  a 
directly  opposite  ruling  was  made.  The  case  of  Boss  v.  Hczvitt 
was  decided  in  1862,  and  the  point  was  directly  involved  in  the 
judgment.  The  defendant  had  given  four  negotiable  notes  pay- 
able respectively  in  one,  two.  three  and  four  years,  with  interest 
payable  annually,  for  the  price  of  sheep  bought  of  the  payees,  and 
secured  all  the  notes  by  a  mortgage.  One  of  the  notes,  and  an 
installment  of  interest  on  all  of  them,  being  due  and  unpaid,  the 
payees  transferred  the  notes  and  mortgage  to  the  plaintiff,  who 
brought  an  action  to  foreclose  the  mortgage.  The  defendant 
pleaded  fraud  on  the  part  of  the  payees  in  the  sale  of  the  sheep. 
The  court  held  that  the  fact  that  the  first  note  was  due  and  unpaid 
at  the  time  of  the  transfer  to  the  plaintiff,  did  not  let  in  the  defense 
as  against  the  notes  not  then  due.    On  the  other  point,  Mr.  Jus- 


518  Holder  in  Due  Course 

tice  Paine,  in  delivering  the  opinion  of  the  court,  says :  "Neither 
do  we  think  that  the  fact  that  the  interest  had  not  been  paid 
makes  the  case  equivalent  to  a  purchase  after  maturity,  so  as  to 
let  in  defenses  that  might  have  been  made  against  the  original 
parties.  The  interest  is  a  mere  incident  to  the  debt,  and  although 
it  is  frequently  provided  that  it  shall  be  paid  at  stated  periods 
before  the  principal  falls  due,  we  know  of  no  authorities  holding 
that  a  failure  to  pay  it  dishonors  the  note,  so  as  to  let  in  all 
defenses  against  subsequent  purchasers  for  value  without  any 
other  notice  of  defects  except  the  mere  fact  that  such  interest 
has  not  been  paid.  And  we  do  not  think  it  should  have  that 
effect.  The  maturity  of  the  note,  within  the  meaning  of  the 
commercial  rule  upon  this  subject,  is  the  time  when  the  principal 
becomes  due."  pp.  262-3.  Boss  v.  Hewitt  derives  direct  support 
from  the  decisions  in  National  Bank  of  North  America  v.  Kirby, 
108  Mass.  497,  and  Cromwell  v.  County  of  Sac,  96  U.  S.  51.  It 
is  true,  in  National  Bank  v.  Kirby,  while  it  was  held  that  failure 
to  pay  interest,  standing  alone,  was  not  sufficient  in  law  to  throw 
such  discredit  upon  the  principal  security  upon  which  it  was  due, 
as  to  subject  the  holder,  to  the  full  extent  of  the  security,  to  ante- 
cedent equities,  yet  it  was  also  held  that  it  was  a  fact  proper  to 
be  considered  by  the  jury,  in  connection  with  other  circumstances, 
on  the  question  whether  the  holder  is  entitled  to  the  protection 
of  one  who  has  taken  it  in  good  faith  and  without  actual  or  con- 
structive notice  of  existing  defenses.  What  is  said  in  the  opinion 
in  Hart  v.  Stickney  upon  the  point  now  in  question,  was  not 
necessarily  involved  in  the  decision,  and  must  therefore  be 
regarded  as  a  mere  dictum.  The  judgment  in  that  case  was 
reversed  on  the  appeal  of  the  plaintiff,  the  holder  of  the  note,  on 
the  ground  that  the  trial  court  refused  proper,  and  gave  erro- 
neous, instructions  as  to  the  legal  consequences  resulting  where 
a  vendee  abandons  possession  of  premises  held  by  him  under  an 
executory  contract  of  sale,  and  the  vendor  takes  the  possession. 
That  was  the  precise  point  upon  which  the  judgment  was 
reversed.  And  as  the  earlier  case  of  Boss  v.  Hezvitt  was  entirely 
overlooked,  which,  by  implication,  is  sustained  by  many  decisions 
of  this  court,  made  in  the  farm  mortgage  cases  and  in  actions 
arising  upon  town,  county  and  city  bonds,  we  deem  it  our  duty 
to  adhere  to  the  rule,  that  a  purchaser  for  value  of  unmatured, 
commercial  paper,  with  interest  overdue,  is  not,  from  that  fact 
alone,  affected  with  notice  of  prior  equities  or  infirmities  in  the 
title. 

The  plaintiff  being  the  purchaser  of  the  note  and  mortgage 


Kkllev  v.  Whitney  et  al.  519 

for  value  before  maturity,  the  further  question  arises,  whether 
there  were  any  circumstances  or  facts  disclosed  which  can  affect 
his  rights  as  a  bona  tide  holder.  In  considering  this  question, 
it  is  necessary  to  bear  in  mind  that  it  is  the  settled  law  in  this 
state  that  _a_negotiable  promissory  note  secured  by  mortgage 
may  be  transferred  before  maturity  like  other  negotiable  paper, 
and  the  holder  takes  it  discharged  of  existing  equities.  The 
mortgage  in  such  a  case  passes  as  an  incident  to  the  note,  and 
may  be  enforced  by  the  holder  in  spite  of  equities  which  may 
exist  between  the  mortgagor  and  mortgagee.  This  is  the  doc- 
trine laid  down  in  Croft  v.  B mister,  9  Wis.  504,  and  the  same 
point  has  been  repeatedly  affirmed  in  subsequent  cases.  And, 
"as  with  other  negotiable  paper,  mere  suspicion  that  there  may 
be  a  defect  of  title  in  its  holder,  or  knowledge  of  circumstances 
which  would  excite  suspicion  as  to  his  title  in  the  mind  of  a 
prudent  man,  is  not  sufficient  to  impair  the  title  of  the  purchaser. 
That  result  will  only  follow  where  there  has  been  bad  faith  on 
his  part."  Cromwell  v.  County  of  Sac,  supra.  Was  the  plaintiff 
guilty  of  gross  negligence,  or  had  he  any  ground  of  suspicion 
of  defect  of  title,  or  knowledge  of  circumstances  which  would 
excite  suspicion  on  the  part  of  a  prudent  man  that  there  was 
some  infirmity  in  these  securities ;  and  if  so,  what  were  those 
circumstances?  The  note,  it  is  said,  was  indorsed  by  the  payee 
and  mortgagee  "without  recourse."  But  that  "jsnot  sufficient  to. 
charge  the  assignee  with  notice  of  a  defense  against  the  note,  on 
the  part  of  the  maker,  nor  is  it  sufficient  to  put  him  on  inquiry 
in  reference  thereto."  Stevenson  v.  O'Neal,  71  111.  314.  Then 
it  is  said  that  the  words  "secured  by  real  estate  mortgage" 
appeared  on  the  face  of  the  note.  But  "the  object  and  intent  of 
the  parties  in  putting  these  words  on  the  note  was  not  to  limit 
or  impair  its  value,  but  to  add  to  it;  *  *  *  and  they  were 
neither  sufficient  to  inform  third  parties  of  the  contents  or  terms 
of  the  mortgage,  nor  to  put  them  upon  inquiry."  Howry  v. 
Eppinger,  34  Mich.  29-33.  Again,  it  is  claimed  that  there  was 
on  the  records  in  the  register's  office  a  satisfaction  or  release  of 
the  note  and  mortgage  in  suit,  executed  by  Curtis  on  the  16th 
day  of  July,  1874,  so  far  as  the  mortgage  was  a  lien  on  the  south 
45  feet  of  lot  30,  known  as  the  hotel  property.  But  the  plaintiff 
does  not  claim  anything  inconsistent  with  that  release,  even  if 
chargeable  with  actual  knowledge  of  its  existence. 

But  it  is  also  said  that  while  Curtis  was  the  owner  of  plain- 
tiff's note  and  mortgage,  and  when  he  executed  this  release,  he 
knew  of  the  existence  of  the  second  mortgage  now  held  by  the 


520  What  Constitutes  Notice  of  Defect 

defendant  Goodenough  on  a  portion  of  the  premises  covered 
by  the  first.  Suppose  he  did :  it  does  not  appear  that  when 
plaintiff  bought  the  note  and  mortgage,  he  had  knowledge  of 
either  the  release  or  the  second  mortgage.  The  doctrine  is  well 
settled,  "that  equity  will  not  permit  a  prior  mortgagee,  knowing 
that  portions  of  the  mortgaged  premises  have  been  subsequently 
conveyed  or  incumbered  by  the  mortgagor,  to  deal  with  hirn_ 
arbitrarily,  to  the  prejudice  of  the  interests  of  such  subsequent 
Incumbrancers  or  purchasers,  by  releasing  those  parts  of  the 
land  on  which  he  has  the  only  lien,  and  attempting  to  enforce 
h*Is~entire  claim  out  of  those  portions  in  which  such  others  had 
become  interested."  Deuster  v.  McCamus,  14  Wis.  308-311.  But 
we  do  not  see  that  this  equitable  principle  has  any  application 
to  this  case,  because  the  defendant  Goodenough  does  not  aver 
in  his  answer  that  he  was  injured  in  any  way  by  the  discharge  of 
the  prior  mortgage  as  to  a  part  of  the  premises  contained  in  that 
mortgage ;  and  the  proof  shows  beyond  a  doubt  that  he  was  not 
prejudiced  thereby.  The  property  may  be  ample  security,  and  it 
appears  that  it  is,  to  discharge  both  mortgages.  So,  in  any  aspect 
oTthe  case,  we  think  the  plaintiff  is  entitled  to  a  judgment  of 
foreclosure  according  to  the  prayer  of  his  complaint. 

By  the  Court. — The  judgment  of  the  circuit  court  is 
reversed,  and  the  cause  remanded  with  directions  to 
enter  such  a  judgment.  ,  ^(^J^^. 

Ryan.  C.  J.,  took  no  part. 


WHAT  CONSTITUTES  NOTICE  OF  DEFECT.  §  58. 

Hamilton  v.  Vought  (1870),  34  N.  J.  L.  187. 

Case  certified  from  the  Sussex  Circuit  Court. 

Hamilton  and  McCartcr,  for  plaintiff. 
Coult  and  Pitney,  for  defendant. 

Beasley,  Chief  Justice.— We  have  presented  to  our  consider- 
ation in  this  case  but  a  single  question,  viz..  whether  the  title  of 
a  holder  of  negotiable  paper,  acquired  before  it  was  due,  for 
valuable  consideration,  is  affected  by  the  fraud  of  a  prior  party, 
without  proof  of  bad  faith  on  the  part  of  such  holder. 

At  the  trial  of  this  cause,  the  jury  was  instructed  that  if  the 
holder  of  the  note  sued  on— the  plaintiff  in  the  action— acquired 
his  title  under  circumstances  which  should  have  put  a  person  of 


Hamilton  v.  Vought  521 

ordinary  prudence  upon  his  guard,  the  note  was  invalid,  if  its 
inception  had  been  fraudulent. 

The  verdict  was  in  favor  of  the  defence,  and  the  plaintiff 
now  insists  that  the  judicial  instruction  should  have  been,  that 
suspicious  circumstances  attending  the  acquisition  of  his  title  were 
not  sufficient  to  defeat  his  claim,  unless  of  a  character  to  raise  a 
conviction  of  actual  fraud  on  his  part. 

Counsel  who  so  ably  argued  this  case  in  behalf  of  the 
defendant,  did  not  deny  that  the  modern  English  authorities  were 
hostile  to  their  position,  but  they  went  upon  the  ground  that  the 
rule  thus  sanctioned  was  an  innovation,  and  consequently  would 
not  be  followed  by  this  court.  The  ancient  rule,  it  was  main- 
tained, is  that  declared  in  Gill  v.  Cubitt,  3  Barn.  &  Cress.  466. 
This  decision  was  made  in  the  year  1824,  and,  beyond  all  ques- 
tion, it  sustains  the  principle  now  claimed  by  the  defence,  for,  in 
the  reported  case  referred  to,  the  jury  were  explicitly  told  that 
"there  were  two  questions  for  their  consideration  :  first,  whether 
the  plaintiff  had  given  value  for  the  bill,  of  which  there  could  be 
no  doubt ;  and,  secondly,  whether  he  took  it  under  circumstances 
which  ought  to  have  excited  the  suspicions  of  a  prudent  and  care- 
ful man."  The  authority  is  directly  in  point,  and  the  only  ques- 
tion which  can  arise  is,  whether  it  correctly  states  the  ancient 
rule  of  the  common  law  upon  the  subject. 

My  first  remark  in  this  connection  is,  that  from  the  opinion 
of  the  judges  in  the  case  of  Gill  v.  Cubitt,  it  appears  that  the 
doctrine  adopted  was  intended  to  be  an  innovation  upon  the  ante- 
cedent practice,  and  that  it  was  avowedly  opposed  to  a  decision  of 
the  greatest  weight.  Twenty-three  years  before,  in  the  year  1801, 
Lord  Kenyon,  in  Lawson  v.  Weston,  4  Esp.  56,  had  expressly 
repudiated  the  idea  that  suspicious  circumstances,  in  the  absence 
of  actual  fraud,  would  avoid  a  note  in  the  hands  of  a  holder  for 
value.  But  this  doctrine  did  not  harmonize  with  the  views  of  the 
judge  in  the  case  of  Gill  v.  Cubitt,  and  it  was  accordingly  over- 
ruled. Thus.  Chief  Justice  Abbott  says,  in  his  opinion :  "I  think 
the  sooner  it  is  known  that  the  case  of  Lawson  v.  Weston  is 
doubted,  at  least  by  this  court,  the  better.  I  wish  doubts  had  been 
cast  on  that  case  at  an  earlier  time."  And  he  concludes:  "For 
these  reasons,  notwithstanding  all  the  unfeigned  reverence  I  feel 
for  everything  that  fell  from  Lord  Kenyon.  by  whom  Lawson  v. 
Weston  was  decided,  I  cannot  think  that  the  view  taken  by  that 
learned  lord  was  a  correct  one."  Nor  is  this  rejection  of  this 
antecedent  decision  attempted,  in  the  slightest  degree,  to  be  put 
upon   the    foundation   of  pre-existing   authority :   not   a   case   is 


522  What  Constitutes  Notice  of  Defect 

referred  to  for  its  justification,  and  although  in  Lawson  v.  Wes- 
ton, the  authority  of  Lord  Mansfield,  in  Miller  v.  Race,  was 
mooted,  no  remark  is  made  on  that  circumstance.  I  think  a  peru- 
sal of  the  opinions  in  Gill  v.  Cubitt  will  satisfy  any  one  that  it 
was  a  well-understood  intention  to  deviate  from  the  legal  rule 
upon  this  subject  which  had  previously  existed ;  or,  if  any  doubt 
should  remain,  such  doubt  will  certainly  be  dispelled  by  a  refer- 
ence to  the  case  of  Slater  v.  West,  3  Carr.  &  Payne  325,  decided 
in  the  year  1828,  in  which  Chief  Justice  Abbott,  (then  Lord  Ten- 
terden)  in  laying  down  the  doctrine  that  a  person  is  not  entitled 
to  recover  who  takes  a  bill  of  exchange  "under  circumstances 
which  ought  to  excite  suspicion  in  the  mind  of  a  reasonable  man," 
says:  "This  doctrine  is  of  modern  origin.  I  believe  I  was  the 
first  judge  who  decided  this  point  at  nisi  prius.  The  court  to 
which  I  belong  confirmed  my  decision,  and  the  other  courts  have, 
I  believe,  acted  on  the  same  principle."  And  Chief  Justice  Bayley, 
in  his  opinion  in  Gill  v.  Cubitt,  is  equally  explicit.  "But,  it  is 
said" — such  is  his  language — "that  the  question  usually  submitted 
for  the  consideration  of  the  jury  in  cases  of  this  description,  up  to 
the  period  of  time  at  which  my  Lord  Chief  Justice's  direction  was 
given,  has  been  whether  the  bill  was  taken  bona  fide,  and  whether 
a  valuable  consideration  was  given  for  it.  I  admit  that  has  been 
generally  the  case."  From  these  citations,  I  think  it  is  manifest 
^jlJLnj.  that  the  judges  who  participated  in  the  decision  of  the  case  of 

Gill  v.  Cubitt  were  aware  that  by  the  views  expressed  by  them, 
they  introduced  a  novelty,  and  departed  from  the  older  practice  of 
the  courts.  That  the  principle  adopted  in  that  case  was  an  inno- 
vation, seems  to  me  unquestionable.  I  have  shown  that  it  is  irrec- 
oncilable with  Lawson  v.  Weston.  So  it  plainly  occupies  the  same 
relation  to  the  case  of  Peacock  v.  Rhodes,  Doug.  632,  decided  by 
Lord  Mansfield  in  1781.  This  rule  which  it  endeavors  to  over- 
throw will  be  found  sustained  in  Miller  v.  Race,  1  Burr.  452 ; 
Price  v.  Neal,  3  Burr.  1355;  Grant  v.  Vaughan,  3  Burr.  1516; 
Anonymous,  1  Lord  Raymond  738;  Morris  v.  Lee,  2  Lord  Ray- 
mond 1396.  There  was  not  a  case  cited  upon  the  argument,  nor 
have  my  researches  led  me  to  one  anterior  to  the  decision  of  Gill 
v.  Cubitt,  which  sustains  the  doctrine  there  propounded.  I  con- 
fidently conclude,  therefore,  that  the  case  above-  criticised  cannot 
stand  on  the  ground  of  ancient  authority.  Tn  my  apprehension, 
the  original  rule  as  it  existed  in  the  time  of  Lords  Kenyon  and 
,  ^^c)^vot\tf>Jt.Mansfield  was,  that  nothing  short  of  mala  fides  would  vitiate  the 
jcyX  c*~-  <*^~jrtTe"~of  the  holder  of  negotiable  paper  taking  it  for  value,  before 
*— **"-*■**")(         maturity.     It  is  entirely  out  of  the  question,  therefore,  for  this 


Hamilton  v.  Vought  523 

court  to  regard  Gill  v.  Cubitt  as  imperative  authority.  It  is  true 
that  that  case  was  followed  for  a  time  to  a  considerable  extent  by 
the  English  courts.  But,  as  I  have  already  said,  in  England  the 
original  rule  has  been  re-instated.  In  Backhouse  v.  Harrison,  5 
B.  &  Ad.  1098,  Air.  Justice  Patterson  says:  "I  have  no  hesitation 
in  saying  that  the  doctrine  first  laid  down  in  Gill  v.  Cubitt,  and 
acted  upon  in  other  cases,  has  gone  too  far  and  ought  to  be 
restricted."  And  in  Goodman  v.  Harvey,  4  Ad.  &  El.  870,  Lord 
Denman  thus  forcibly  expresses  the  rule  at  present  prevailing  in 
the  courts  at  Westminster :  "The  question  I  offered  to  submit  to 
the  jury  was,  whether  the  plaintiff  had  been  guilty  of  gross  negli- 
gence or  not.  I  believe  we  are  all  of  opinion  that  gross  negligence 
only  would  not  be  a  sufficient  answer  where  the  party  has  given 
consideration  for  the  bill.  Gross  negligence  may  be  evidence  of 
mala  fides,  but  it  is  not  the  same  thing.  We  have  shaken  off  the 
last  remnant  of  the  contrary  doctrine.  Where  the  bill  has  passed  to 
the  plaintiff  without  any  proof  of  bad  faith  in  him,  there  is  no 
objection  to  his  title."  The  following  cases  recognize  and  enforce 
the  same  rule:  Uther  v.  Rich,  10  Ad.  &  El.  784;  Artbouin  v. 
Anderson,  1  Ad.  &  El.  (N.  S.)  498;  Stephens  v.  Foster,  1 
Cromp.,  Mees.  &  Ros.  894;  Palmer  v.  Richards,  1  Eng.  L.  &  Eq. 
529;  Marston  v.  Allen,  8  Mees.  &  Wels.  494;  Raphael  v.  Bank  of 
England,  17  C.  B.  161. 

An  examination  of  the  American  reports  will  disclose  a  sim- 
ilar mutation  of  judicial  opinion  upon  this  subject.  For  a  time, 
in  several  of  the  states,  the  rule  broached  in  the  case  of  Gill  v. 
Cubitt  has  been  acted  upon  ;  but  now,  in  most  of  them,  and  in 
those  of  the  most  commercial  importance,  that  rule  has  been 
entirely  discarded.  (34  New  York,  247;  Magee  v.  Badger;  7 
Bosworth  543,  Bel  Bank  of  Ohio  v.  Hoge  et  al.;  10  Cush.  488, 
Worcester,  &c.,  Bank  v.  Dorchester,  &c,  Bank;  4  Geo.  287.  Mat- 
thews v.  Poythrcss;  6  Md.  509,  Bill  v.  Martin,  36  New  Hamp. 
273,  Crosby  v.  Grant). 

The  subject  has  also  recently  been  settled,  after  an  elaborate 
discussion  and  full  consideration  in  the  Supreme  Court  nf  the 
United  States,  in  the  case  of  Goodman  v  Simm\ds,j2Qjloyi,  34V 
the  result  being  an  explicit  repudiation  of  the  doctrine  that  sus- 
picious circumstances  will,  per  se,  vitiate  thejjtle  to  commercial 
paper. 

From  this  brief  review  of  the  cases.  I  think  it  may  be  safely 
said  that  the  doctrine  introduced  by  Lord  Tenterden  stands  at  the 
present  moment  marked  with  the  disapproval  of  the  highest 
judicial  authority.     Nor  does  such  disapproval  rest  upon  merely 


524  What  Constitutes  Notice  of  Defect 

speculative  grounds.  That  doctrine  was  put  in  practice  for  a 
course  of  years,  and  it  was  thus,  from  experience,  found  to  be 
inconsistent  with  true  commercial  policy.  Its  defect — a  great 
defect,  as  Ijhink — was,  that  it  provided  nothing  like  a  criterion" 
^  ^  OvatttA  ^on  which  a  verdict  was  to  be  based.  The  rule  was,  that  to  defeat 
jk^  \  the  note,  circumstances  must  be  shown  of  so  suspicious  a  character 

that  they  would  put  a  man  of  ordinary  prudence  on  inquiry — 
and  by  force  of  such  a  rule  it  is  obvious  eypry  c?sp  possessed  of 
unusual  incidents  would,  of  necessity,  pass  under  the  uncontrolled 
discretion  of  a  jury.  An  incident  of  the  transaction  from  which 
any  suspicion  could  arise  was  sufficient  to  take  the  case  out  of  the 
control  of  the  court.  There  was  no  judicial  standard  by  which 
suspicious  circumstances  could  be  measured  before  committing 
them  to  the  jury.  And  it  is  precisely  this  want  which  the  modern 
rule  supplies.  When  mala  fides  is  the  point  of  inquiry,  suspicious 
circumstances  must  be  of  a  substantial  character,  and  if  such 
circumstances  do  not  appear,  the  court  can  arrest  the  inquiry. 
Under  the  former  practice,  circumstances  of  slight  suspicion 
would  take  the  case  to  the~jury ;  under  the  present  rule,  the  cirr 
cumstances  must  be  strong,  so"  that  bad  taith  can  be  reasonably 
inferred.  Thus  the  subject  has  passed  trom  the  indefinite  to 
comparatively  definite ;  from  the  intangible  to  the  comparatively 
tangible.  From  a  mere  matter  of  fact,  the  question,  to  some 
extent,  has  become  one  of  law.  I  cannot  doubt,  when  we  recol- 
lect that  inquiries  of  this  nature  always  attend  that  class  of 
cases  where  judgments  are  sought  against  innocent  and  unfor- 
tunate parties,  that  the  change  is  most  beneficial.  All  experi- 
ence_has  shown  how  hard  it  is  to  prevent  juries  from  seizing 
on_the  slightest  circumstances  to  avoid  giving  a  verdict  against 
the  maker  of  a  note  which  had_  been  obtained  by  fraud  or  theft. 
To  preserve  the  negotiability  of  commercial  paper  and  guard  the 
interests  of  trade,  it  is  absolutely  necessary  that  large  power 
should  be  placed  in  the  judicial  hand  when  the  question  arises  as 
to  what  facts  are  sufficient  to  defeat  the  claim  of  the  holder  of  a 
note  or  bill  which  has  been  taken  before  maturity,  and  for  which 
value  has  been  paid.  It  is  only  in  this  mode  that  the  requisite 
stability  in  transactions  of  this  kind  can  be  retained.  But  I  do 
not  think  the  difference  between  the  two  rules  above  discussed 
is  as  great  as  some  persons  have  supposed.  In  my  apprehension, 
the  entire  varijLnce-Xonsi&ts  in  the  degree  of  proof  which  the  court 
wi]1^_reqnirp  in  order  to  submit  the  inquiry  to  the  jury.  Mere 
carelessness  in  taking  the  paper  will  not,  of  itself,  impair  the  title, 
so  acquired ;  but  carelessness  may  be  so  gross  that  bad  faith  rnav 


Cheever  v.  Pittsburg  R.  R.  Co.  525 

be  inferred  from  it.  Nor  is  it  necessary,  in  order  to  defeat  the 
title  of  the  holder,  that  he  have  actual  knowledge  of  the  facts  and 
circumstances  constituting  the  particular  fraud ;  it  is  sufficient  if 
he  have  knowledge  that  the  paper  is  tainted  with  any  fraud, 
although  he  may  be  ignorant  of  the  nature  of  it.  In  the  case  of 
May  v.  Chapman,  16  Alees.  &  \Y.  355,  Baron  Parke  says:  "I 
agree  that  'notice  and  knowledge'  means  not  merely  express 
notice,  but  knowledge,  or  the  means  of  knowledge,  to  which  the 
party  wilfully  shuts  his  eyes."  Reviewed  in  this  sense,  as  I  have 
already  remarked,  the  principle  seems  to  me  a  highly  salutary 
one,  and,  in  the  language  of  Professor  Parsons,  is  well  "adapted 
to  the  free  circulation  of  negotiable  paper  and  the  true  interests 
of  trade."    ( 1  Par.  B.  &  N.  259) . 

/  think  a  new  trial  should  be  granted. 
Scudder  and  Van  Syckel,  Justices,  concurred.     JLvj-^  V^-eww 


y.  Cheever  v.  The  Pittsburg  &c.  R.  R.  Co.  ( 1896) ,  150  N.  Y.  59.      \yfal&C^ ' f 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme  ^\  I  • 
Court  in  the, first  judicial  department,  entered  upon  an  order  made 
October  13,  1893,  which  overruled  plaintiff's  exceptions  taken 
on  the  trial  at  Circuit  and  ordered  to  be  heard  in  the  first  instance 
at  General  Term,  and  directed  judgment  for  the  defendant  dis- 
missing the  plaintiff's  complaint  as  to  the  first  and  second  causes 
of  action  therein  contained. 

The  nature  of  the  action  and  the  facts,  so  far  as  material,  are 
stated  in  the  opinions. 

Austen  G.  Fox,  for  appellant. 

Frank  Sullivan  Smith,  for  respondent. 

O'Brien,  J. — The  complaint  in  this  action  contained  four 
separate  causes  of  action,  each  upon  a  promissory  note  of  the 
defendant.  The  last  two  causes  of  action  were  not  defended,  and 
upon  these  the  plaintiff  recovered,  but  was  defeated  upon  the 
two  notes  embraced  in  the  first  and  second  causes  of  action.  The 
defense  to  these  two  notes  was  that  they  were  made  by  the  defend- 
ant's president,  one  M.  S.  Frost,  and  by  him  wrongfully  diverted 
from  the  uses  and  purposes  for  which  they  were  intended  to  his 
own  personal  or  private  benefit,  or  the  benefit  of  a  firm  of  which  he 
was  a  member,  and  that  the  plaintiff  is  not  a  bona  fide  holder,  but 
chargeable  with  notice  of  these  facts. 


526  What  Constitutes  Notice  of  Defect 

The  following-  are  copies  of  the  two  notes  in  controversy, 
with   the  indorsements  thereon   when   put  in   circulation  hy  the 
defendant's  president: 
"$5,000.  Greenville,  Pa.,  Feb'y  24th,  1888. 

"Four  months  after  date  the  Pittsburgh,  Shenango  and  Lake 
Erie  Railroad  Company  promises  to  pay  to  the  order  of  John  T. 
Bruen  five  thousand  dollars,  at  the  American  Exchange  National 
Bank,  New  York  city. 

"Value  received.  The  Pittsburgh,  Shenango  &  Lake 

"Attest,  Erie  Railroad  Company. 

"E.  S.  Templeton,  By  M.  S.  Frost, 

"Secretary.  "President." 

'Indorsed : 

"Pay  to  the  order  of  M.  S.  Frost  &  Son, 

"John  T.  Bruen, 
"M.  S.  Frost  &  Son." 
"$5,000.00  Greenville,  Pa.,  Feb'y  24th,  1888. 

"Three  months  after  date  the  Pittsburgh,  Shenango  and  Lake 
Erie  Railroad  Company  promises  to  pay  to  the  order  of  John  T. 
Bruen  five  thousand  dollars,  at  the  American  Exchange  National 
Bank,  New  York  city. 

"Value  received.  The  Pittsburgh,  Shenango  &  Lake 

"Attest,  Erie  Railroad  Company. 

"E.  S.  Templeton,  By  M.  S.  Frost, 

"Secretary.  "President." 

Indorsed — "John  T.  Bruen, 

"M.  S.  Frost  &  Son." 

The  body  of  these  notes  and  every  part  of  them  except  the 
signature  of  the  president  was  in  the  handwriting  of  Templeton, 
the  secretary.  The  president  was  authorized  by  the  board  of 
directors  to  issue  the  corporate  notes  to  the  extent  of  $10,000 
for  the  purpose  of  purchasing  flat  cars.  In  March,  1888,  before 
the  notes  became  due.  Frost  wrent  to  Boston  and  there  negotiated  a 
cash  loan  of  $30,000  from  Francis  A.  Brooks  for  the  benefit  of  M. 
S.  Frost  &  Son,  giving  the  firm  note  therefor  and  delivering  to  him 
the  two  notes  in  question,  indorsed  as  they  now  appear,  with 
other  obligations,  as  collateral  security  for  the  payment  of  this 
loan.  Subsequent  to  the  maturity  of  the  notes  Brooks  became  the 
absolute  owner  by  consent  of  the  pledgor  and  the  proceeds  applied 
upon  the  debt,  and  still  later  he  transferred  them  to  a  third  party. 
and  they  have  come  to  the  hands  of  the  plaintiff  for  value.  It 
is  not  claimed  that  the  plaintiff  occupies  any  other  or  different 


Cheever  v.  Pittsburg  R.  R.  Co.  527 

position  than  Brooks  would  if  he  had  brought  the  action  upon 
the  notes  at  maturity.  Bruen,  the  payee  of  the  notes,  was  the 
private  secretary  of  Frost,  the  president,  and  the  notes  were  made 
payable  to  him  by  Templeton,  the  secretary  of  defendant,  who 
drew  them  in  that  form  at  the  suggestion  of  the  president.  There 
is  not  and  cannot  be  any  dispute  with  respect  to  the  authority  of 
Frost  to  make  the  notes.  They  were  made  with  sufficient  author- 
ity, the  fraud  upon  the  defendant  consisting  in  the  wrongful  use 
of  them  when  made  for  a  legitimate  purpose  by  the  president  for 
his  own  private  business. 

Nor  is  there  any  dispute  with  respect  to  the  fact  appearing 
on  the  plaintiff's  case,  that  Brooks  paid  value  for  the  notes  and 
made  present  advances  in  cash  to  Frost  in  the  sum  already  stated. 
It  is  equally  clear  upon  the  record  that  Brooks  had  no  actual 
knowledge  of  the  facts  surrounding  the  origin  of  the  paper  or  of 
the  diversion  of  it  by  the  president.  He  received  the  notes  and 
made  the  advance  in  Boston,  whereas  they  were  made  and  the 
transaction  stated  with  respect  to  them  took  place  in  a  distant 
State,  where  the  office  of  the  company  was,  and  is  indicated  on 
the  paper  as  the  place  where  made. 

The  learned  trial  judge  held  as  matter  of  law  that  the  plain- 
tiff could  not  recover  upon  the  notes  for  the  reason  that  he  was 
chargeable  with  knowledge  of  the  facts  and  circumstances  that 
rendered  them  invalid  in  the  hands  of  Frost.  The  plaintiff  is, 
doubtless,  chargeable  with  such  knowledge  or  notice  as  to  the 
antecedent  equities  of  the  defendant  as  Brooks,  his  assignor,  had, 
but  with  no  others.  If  the  notes  were  valid  obligations  in  the 
hands  of  Brooks  the  plaintiff  may  assert  every  right  that  he  could 
have~asserted.  It  needs  no  argument  to  show  that  if  Brooks  had 
knowledge  or  notice  or  is  in  law  chargeable  with  knowledge  or 
notice  of  the  fraud  by  means  of  which  the  notes  were  diverted^ 
from  the  purpose  for  which  they  were  authorized  to  be  made,  that 
the  plaintiff  cannot  recover^  But  it  is  not  claimed  that  he  knew 
anything  abouT~fne  origin' or  diversion  of  the  paper  in  fact.  All 
that  is  claimed  is  that  when  it  was  presented  to  him  in  Boston  by 
Frost,  whom  he  knew  to  be  the  president  of  the  railroad,  there 
was  enough  upon  the  face  of  the  paper  to  put  him  upon  inquiry 
and,  therefore,  to  charge  him  with  knowledge  of  all  the  facts  that 
such  inquiry  would  have  disclosed.  He  knew  nothing,  so  far  as 
appears,  outside  of  the  paper  itself,  except  the  fact  that  the  party 
presenting  it  was  defendants'  president  and  that  he  was  proposing 
to  pledge  notes  for  his  own  debt,  or  rather  for  the  debt  of  his 
firm,  which  for  all  the  purposes  of  the  question  may  be  assumed 


528  What  Constitutes  Notice  of  Defect 

to  be  the  same  thing.  The  question  in  the  case  is,  therefore. 
reduced  to  a  very  narrow  inquiry,  and  that  is  whether  Brooks, 
standing  in  all  other  respects  in  the  position  and  sustaining-  the 
charcter  of  a  bona  tide  purchaser  of  negotiable  paper,  is  deprived 
of  that  character  and  the  benefits  of  that  position  by  reason  of 
anything  appearing  upon  the  face  of  the  notes  themselves. 

The  mind,  at  the  threshold  of  the  inquiry,  encounters  two 
principles  that  point  in  opposite  directions  and  lead  to  different 
conclusions,  as  the  one  or  the  other  is  allowed  to  preponderate 
in  the  mental  process  of  determining  the  legal  rights  of  the  par- 
ties. On  the  one  hand  is  the  principle  which  protects  a  bona  fide 
holder  of  commercial  paper  from  existing  antecedent  equities 
between  the  parties,  and  on  the  other  the  principle  which  protects 
a  corporation  from  the  unauthorized  and  fraudulent  acts  of  its 
own  officers.  There  is  not  much  difficulty  in  stating  the  rule  of 
law  defining  the  duties  and  obligations  of  a  party  to  whom  nego- 
tiable  paper  is  presented  for  discount  or  sale  before  due.  He  is 
not  bound  at  his  peril  to  be  on  the  alert  for  circumstances  which  _ 
might  possibly  excite  the  suspicion  of  wary  vigilance;  he  does  not 
owe  to  the  party  who  puts  the  paper  afloat  the  duty  of  active 
inquiry  in  order  to  avert  the  imputation  of  bad  faith.  The  rights 
of  the  holder  are  to  be  determined  by  the  simple  test  of  honesty 
and  good  faith,  and  not  by  a  speculative  issue  as  to  his  diligence 
or  negligence.  The  holder's  rights  cannot  be  defeated  without 
proof  of  actual  notice  of  the  defect  in  title  or  bacT faith  on  hisC 
part  evidenced  by  circumstances.  Though  he  may  have  been  neg- 
ligent in  taking  the  paper,  and  omitting  precautions  which  a  pr~ 
dent  man  would  have  taken,  nevertheless,  unless^  he  actcKjnalq/S. 
tide,  his  title,  according  to  settled  doctrine,  will  prevajh  (Magee 
V.  badger,  34  N.  Y.  249;  Am.  Ex.  Nat.  Bk.  v.  Ar.  Y.  Belting,  etc., 
Co.,  148  N.  Y.  705;  Knox  v.  Eden  Musee  Am.  Co.,  148  N.  Y. 
454;  CanajoJiarie  Nat  Bk.  v.  Diefcndorf,  123  N.  Y.  202;  Vos- 
burgh  v.  Diefcndorf,  119  N.  Y.  357;  Jarvis  v.  Manhattan  Beach 
Co.,  148N.  Y.  652). 

Applying  these  rules  to  the  conceded  facts  of  the  case,  it 
seems  to  me  to  be  impossible  to  impute  bad  faith  to  Brooks  in  the 
transaction.  He  advanced  a  large  sum  of  money  on  the  faith  of 
the  paper,  without  any  actual  knowledge  that  the  relations  of  the 
party  with  whom  he  dealt  to  the  paper  were  different  from  what 
they  appeared  to  be  on  the  face  of  it.  The  question  now  is,  not 
what  the  facts  were,  but  what  they  appeared  to  be,  and  what  he 
had  the  right,  from  the  notes  themselves,  to  assume.  He  had  the 
right  to  assume  that  the  relations  to  the  paper  of  every  party 


Cheever  v.  Pittsburg  R.  R.  Co.  529 

•whose  name  appeared  on  it  were  precisely  what  they  appeared  to 
be.  (Hoge  v.  Lansijig,  35  N.  Y.  136).  lie  had  the  right  to 
believe  that  the  notes  had  been  issued  by  the  defendant  to  Bruen 
for  value  in  the  regular  course  of  business,  and  were  by  him  trans- 
ferred to  Frost  &  Son  in  like  manner.  There  was  nothing  to  sug- 
gest to  him  that  Frost  was  dealing  with  paper  that  belonged  to 
the  railroad  for  his  own  benefit.  The  appearances  were  that  the 
defendant  had  put  the  notes  in  circulation  by  delivery  to  Bruen, 
and  that  they  came  to  Frost's  firm  in  the  regular  course  of  busi- 
ness for  value  and  were  then  the  property  of  the  firm.  It  is  quite 
true  that  all  these  appearances  were  deceptive  and  that  the  actual 
facts  were  otherwise.  But  how  was  a  banker  or  business  man  in 
Boston  to  know  or  suspect  that  Bruen  was  only  the  nominal  payee 
and  a  mere  instrument  in  the  transaction  to  enable  the  president 
to  divert  the  paper  to  his  own  use.  The  name  of  the  party  who  pre- 
sented it  and  had  it  in  his  possession  appeared  on  the  face  of  the 
paper  to  have  signed  it  as  president.  The  name  of  another  officer 
of  the  corporation  was  upon  it  also,  attesting  its  regularity,  and 
everything  was  in  his  handwriting  except  the  signature  of  the 
president  and  the  indorsement  of  the  payee.  So  far  as  Brooks 
was  concerned,  the  paper  showed  that  it  had  been  issued  to  a 
stranger  in  the  regular  course  of  business,  and,  through  his 
indorsement,  had  come  to  the  hands  of  a  mercantile  firm  of  which 
the  president  of  the  corporation  was  a  member.  If  this  were  the 
fact,  there  is  no  doubt  as  to  his  right  to  use  it  in  the  business  of 
the  firm.  The  holder  of  a  note  who  has  no  actual  knowledge  or 
notice  of  a  defect  in  the  title,  or  other  equities  between  the  parties, 
when  circumstances  come  to  his  knowledge  sufficient  to  put  him 
upon  inquiry,  is  chargeable  with  knowledge  of  all  the  facts  that 
such  inquiry  would  have  revealed.  The  difficulty  in  this  case  is 
to  find  the  circumstance  which  can  be  said  to  be  sufficient  to  put 
Brooks  upon  the  inquiry.  There  was  absolutely  nothing  on  the 
face  of  the  paper  except  the  signature,  as  president,  of  the  party 
who  was  dealing  with  it,  and  that,  we  think,  was  not  sufficient  in 
view  of  the  fact  that  the  appearances  were  that  he  was  a  pur- 
chaser from  a  third  party. 

The  principle  that  applies  in  a  case  where  an  officer  of  a  cor- 
poration makes  the  corporate  obligation  payable  to  himself,  and 
then  attempts  to  deal  with  it  for  his  own  benefit,  does  not  aid  in 
solving  the  question  in  this  case.  When  paper  of  that  character 
is  presented  by  the  officer  or  agent  of  the  corporation,  it  bears 
upon  its  face  sufficient  notice  of  the  incapacity  of  the  officer  or 
agent  to" issue  it.  (Hanover  Bank  v.  Am.  Dock  &  T.  Co.,  148 
N.  Y.  612;  Bank  of  N.  Y.,  etc.,  v.Am.  Dock  &  T.  Co.,  143  N.  Y. 


530  What  Constitutes  Notice  of  Defect 

559;  Wilson  v.  M.  E.  R.  Co.,  120  N.  Y.  145;  Gerona  v.  McCor- 
mick,  130  X.  Y.  261).  There  are  numerous  cases  that  belong  to 
that  class  cited  by  the  learned  counsel  for  the.  defendant  on  his 
brief.  There  is  a  manifest  distinction  between  them  and  the  case 
at  bar.  Here  the  officer  was  not  dealing  with  the  corporate  notes 
payable  to  himself  but  with  notes  that  had  been  regularly  issued, 
so  far  as  appeared  from  their  face,  to  a  stranger,  and  by  him 
transferred  to  a  firm  of  which  the  officer  was  a  member  and  for 
which  he  acted  as  agent  in  procuring  the  loan  from  Brooks  and 
pledging  them  as  security.  The  presence  of  Frost's  name  upon 
the  paper,  as  one  of  the  agents  who  issued  it,  was  not  naturally 
or  reasonably  calculated,  under  the  circumstances,  to  arouse  sus- 
picion in  the  mind  of  Brooks,  or  to  lead  him  to  believe  that  the 
president  was  attempting  to  defraud  the  corporation  in  disposing 
of  the  notes.  None  of  the  cases  cited  by  the  learned  counsel  for 
the  defendant  sustain  the  proposition  that  such  a  circumstance  is 
sufficient  to  put  the  purchaser  of  negotiable  paper  upon  inquiry 
or  charge  him  with  knowledge  of  the  fact  in  case  he  fails  to  make 
it,  and  there  are  many  cases  that  tend  to  support  the  contrary 
view.  (Am.  Ex.  Nat.  'Bank  v.  N.  Y.  B.  &  P.  Co.,  148  N.  Y.  698  ; 
Miller  v.  Consolidation  Bank,  48  Penn.  St.  514;  Walker  v.  Kee, 
14  S.  C.  142). 

It  is  said  that  if  the  plaintiff's  right  to  recover  in  this  case 
is  sanctioned  by  this  court  an  easy  way  will  be  opened  for  the 
perpetration  of  frauds  upon  corporations  by  officers  intrusted 
with  its  negotiable  obligations,  and  that  the  device  of  making  the 
paper  payable  to  the  order  of  a  nominal  payee,  interested  or  aid- 
ing in  the  fraud,  will  be  a  favorite  one  to  accomplish  the  end. 
We  must  leave  all  such  cases  to  be  dealt  with  upon  the  peculiar 
facts  and  circumstances  as  they  arise.  It  is  more  reasonable  and 
just  to  assume  that  corporations  will  be  able  to  protect  themselves 
by  proper  vigilance  from  the  dishonesty  of  their  own  officers,  than 
to  impute  to  parties  who  have  taken  the  paper  for  value,  ignorant 
of  its  origin,  constructive  knowledge  of  the  facts  upon  such  cir- 
cumstances as  exist  in  this  case. 

We  think  that  there  was  nothing  on  the  face  of  the  paper  or 
in  the  facts  shown  to  warrant  the  court  in  holding  as  matter  of 
law,  as  it  did,  that  the  obligations  were  received  by  Brooks  and 
the  advances  made  on  them  mala  fide.  That  is  the  effect  of  the 
ruling  at  the  trial,  and  the  conclusion  was  not  supported  by  the 
facts. 

//  follows  that  the  judgment  must  be  reversed  and  a  new 
trial  granted,  costs  to  abide  the  c:-cnt. 

Bartlett,  J.  (dissenting).  &cn_-  fdU-w^ ' 


McNamaka  v.  Jose  531 

McNamara  v.  Jose  (1902),  28  Wash.  461. 

Appeal  from  Superior  Court,  King  county. — Hon.  George 
Meade  Emory.,  Judge. 

John  E.  Humphries  and  Harrison  Bostwick,  for  appellant.        « 

William  1'armerlee,  for  respondent. 

The  opinion  of  the  court  was  delivered  by 

Fullerton,  J. — The  respondent  brought  this  action  against  j 
the  appellant  and  one  Thomas  Carstens  to  recover  upon  a  promis-  j 
sory  note  of  which  the  following  is  a  copy: 
"$1,000.  Seattle,  Wash.,  Dec.  28th,  1899. 

"On  or  before  July  I,  1900,  after  date,  (without  grace)  I 
promise  to  pay  to  the  order  of  James  Daly,  one  thousand  dollars, 
for  value  received,  payable  only  in  United  States  gold  coin. 

"Payable  at  Cape  Nome. 

"Jose  &  Carstens, 

"Per  Alfred  Jose." 

He  alleged  in  his  complaint  that  he  purchased  the  note  from 
the  James  Daly  named  therein  as  payee,  prior  to  its  maturity, 
for  a  valuable  consideration,  without  notice  or  knowledge  of 
"anv  defenses  or  equities,  existing  in  favor  of  defendants,  and 
against  said  Daly."  The  appellant- alone  answered.  He  denied 
all  of  the  allegations  of  the  complaint,  and  alleged  affirmatively, 
in  substance,  that  the  note  was  given  Daly  as  part  of  the  purchase 
price  of  a  certain  lot  situated  in  the  town  of  Nome,  Alaska,  to 
which  Daly  had  no  title,  and  to  which  he  falsely  and  fraudulently 
represented  he  had  title  as  an  inducement  to  the  appellant  to  pur- 
chase the  same,  all  of  which  was  well  known  to  the  respondent 
at  the  time  he  purchased  the  note  from  Daly.  At  the  trial  of  the 
cause  the  respondent  called  the  appellant  as  a  witness,  who  testi- 
fied that  he  executed  the  note  personally,  that  Carstens  had  not 
authorized  him  to  sign  his  (Carstens)  name  thereto,  and,  while 
he  believed  he  had  authority  to  so  sign  it  at  the  time,  he  did  not 
in  fact  have  such  authority.  On  this  being  shown,  the  respondent 
dismissed  as  to  Carstens,  and  the  action  proceeded  against  the 
appellant.  At  the  conclusion  of  the  evidence  the  court  took  the 
case  from  the  jury,  and  directed  a  judgment  to  be  entered  in 
favor  of  the  respondent  against  the  appellant  for  the  full  amount 
of  the  note.  The  errors  assigned  raise  the  question  of  the  correct- 
ness of  this  ruling. 


532  What  Constitutes  Notice  of  Defect 

From  the  evidence  the  jury  could  have  well  found  that  the 
note  was  procured  by  Daly  from  the  appellant  through  his  mis- 
representations as  to  his  title  to  the  property  deeded  as  a  consid- 
eration for  the  note.  It  must,  therefore,  for  the  purposes  of  this 
appeal,  be  taken  as  established  that  the  appellant  has  a  defense 
to  the  note  as  against  Daly,  or  against  any  one  taking  the  note 
from  him  with  knowledge  of  its  infirmity  or  defect,  "or  knowl- 
edge  of  such  facts  that  his  action  in  taking  the  instrument 
amounted  to  bad  faith."  Session  Laws  1899,  p.  350,  §  56.  The 
circumstances  under  which  the  respondent  received  the  note 
appear  from  his  own  testimony.  He  not  only  testified  in  his  own 
behalf,  but  was  called  by  the  appellant,  and  subjected  to  a  most 
searching  examination.  In  brief,  his  story  is  that  he  purchased 
the  note  from  Daly  some  three  months  after  its  execution,  paying 
him  therefor  $470  in  cash,  and  cancelling  an  account  he  held 
against  him  of  $30,  making  $500  in  all ;  that  he  knew  both  Jose 
and  Car-stens  at  the  time,  and  knew  them  to  be  solvent;  that  he 
made  no  inquiry  other  than  of  Daly  as  to  the  consideration  for 
the  note ;  that  he  made  no  inquiry  of  either  Jose  or  Carstens  con- 
cerning it,  and  had  no  notice  of  any  infirmity  in  the  instrument, 
or  that  the  appellant  had  published  a  warning  against  its  pur- 
chase ;  and  that,  if  he  had,  he  would  not  have  purchased  it.  That 
when  Daly  first  mentioned  the  note  to  him  it  was  in  the  hands  of 
one  Thomas  McCorey,  whom  Daly  said  he  had  bargained  it  to 
for  $700,  but  did  not  think  he  had  effected  a  sale,  as  he  did  not 
believe  McCorey  could  raise  the  money ;  that  he  first  asked  him 
$700  for  the  note,  but  finally  consented  to  take  the  amount  paid : 
that  he  noticed  the  note  was  payable  at  Cape  Nome,  and  he  did 
not  think  it  strange  that  Daly  would  sell  the  note  for  $500,  "as 
he  was  the  kind  of  a  fellow  that  wanted  that  much  money  at  that 
time."  While  it  was  shown  that  the  respondent  had  a  place  of 
business,  the  character  of  that  business — whether  or  not  he  made 
it  his  business,  or  a  part  of  his  business,  to  discount  commercial 
paper — does  not  appear.  There  is  nothing  in  the  record,  however, 
that  questions  his  repute,  and  his  statements  as  to  the  circum- 
stances under  which  he  obtained  the  note  are  not  called  in 
question. 

The  Negotiable  Instruments  Act  of  this  state  (Laws  1899. 
P-  35°>  §  52)  defines  a  holder  in  due  course  of  a  negotiable  instru- 
ment to  be  one  who  has  taken  the  instrument  under  the  following 
conditions : 

"(1)  That  it  is  complete  and  regular  upon  its  face;  (2)  that 
he  became  the  holder  of  it  before  it  was  overdue,  and  without 


McNamara  v.  Jose  583 

notice  that  it  had  been  previously  dishonored,  if  such  was  the 
fact;  (3)  that  he  took  it  in  good  faith  and  for  value;  (4)  that  at 
the  time  it  was  negotiated  to  him  he  had  no  notice  of  any  infirmity 
in  the  instrument  or  defect  in  the  title  of  the  person  negotiat- 
ing it." 

The  act  further  provides  (Id.  §  56)  that,  to  constitute  notice 
of  an  infirmity  in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  the  same,  the  person  to  whom  it  is  negotiated  must 
have  had  actual  knowledge  of  the  infirmity  or  defect,  or  knowl- 
edge of  such  facts  that  his  action  in  taking  the  instrument 
amounted  to  bad  faith;"  and  (Id.  §57),  that  "a  holder  in  due 
course  holds  the  instrument  free  from  any  defect  of  title  of  prior 
parties,  and  free  from  defenses  available  to  prior  parties  among 
themselves,  and  may  enforce  payment  of  the  instrument  for  the 
full  amount  thereof  against  all  parties  liable  thereon."  But,  not- 
withstanding this  act  positively  provides  that,  to  constitute  notice 
of  an  infirmity  in  a  negotiable  instrument,  the  purchaser  must 
have  knowledge  of  such  facts  that  his  action  in  taking  the  instru- 
ment amounted  to  bad  faith,  we  cannot  think  that  the  legislature 
meant  to  sav  that  a  purchaser  of  a  negotiable  instrument  can 
shut  his  eyes  to  the  surrounding  circumstances,  remain  in  willful 
ignorance  of  facts  which  would  have  made  known  to  him  the" 
infirmities  of  the  instrument  he  purchases,  and  then  claim,  because 
he  had  no  actual  knowledge  of  such  infirmities,  that  his  title  there- 
to is  unimpeachable ;  but  that  it  is  still  the  rule  that  willful  ignor- 
ance and  guilty  knowledge  alike  involve  the  result  of  bad  faith. 
This,  however,  does  not  mean  that  the  holder's  title  is  to  be  over- 
thrown by  slight  circumstances.  He  does  not  owe  to  the  party 
who  puts  the  paper  afloat  the  duty  of  active  inquiry  in  order  to 
avert  the  imputation  of  bad  faith.  His  rights  are  to  be  deter- 
mined by  the  simple  test  of  honesty  and  good  faith,  not  by  a 
speculative  inquiry  into  diligence  or  negligence.  Although  he 
may  have  been  negligent  in  taking  the  paper,  and  omitted  pre- 
cautions which  a  prudent  man  would  have  taken,  nevertheless, 
unless  he  acted  mala  fide,  his  title  will  prevail.  Crawford,  Nego- 
tiable Instruments  Law  (2d.  ed.),  p.  54. 

"Suspicion  of  defect  of  title  or  the  knowledge  of  circum- 
stances which  would  excite  suspicion  in  the  mind  of  a  prudent 
man,  or  gross  negligence  on  the  part  of  the  taker,  at  the  time  of 
the  transfer,  will  not  defeat  his  title.  That  result  can  be  pro- 
duced only  by  bad  faith  on  his  part."  Murray  v.  Lardner,  2 
Wall.  no. 

Tested  bv  these  rules,  is  there  anything  in  the  evidence  before 


534  What  Constitutes  Notice  of  Defect 

us,  which  required  the  submission  of  the  cause  to  the  jury?  We 
think  not.  Laying  aside  the  fact  that  it  was  purchased  at  such, 
a  large  discount  there  is  nothing  that  even  tends  to  show  bad_ 
faith  on  thepart  of  the  appellant,  and  this  one  fact  loses  much 
of  its  persuasiveness  when  it  is  remembered  that  the  note  is  pay- 
able at  Cape  Nome,  which  the  court  judiciously  knows  is  on  the 
coast  of  Alaska,  inaccessible  for  a  greater  portion  of  the  year, 
and  not  at  any  time  in  the  line  of  regular  communication.  It 
certainly  would  not  blTsought  by  investors  in  commercial  paper 
so  long  as  there  was  a  possibility  of  their  being  compelled  to 
enforce  its  payment  at  that  place.  Again,  the  purchase  of  a  note 
at  a  discount  is  not  of  itself,  under  ordinary  circumstances,  evi- 
dence of  bad  faith.  When  it  is  very  large,  that  circumstance  may 
be  considered  in  connection  with  other  circumstances  in  deter- 
mining the  question  of  the  purchaser's  good  faith ;  but  unless  the 
consideration  be  merely  nominal,  or  so  grossly  inadequate  as  to 
lead  to  the  conclusion  that  the  purchase  is  made  for  the  purpose 
of  speculating  upon  the  chances  of  collection,  it  is  not  of  itself 
sufficient  to  justify  a  finding  of  bad  faith. 

The  appellant  makes  some  question  on  the  order  in  which  the 
court  admitted  the  proofs.  He  also  contends  that  the  recovery 
should  be  limited  to  the  amount  the  respondent  paid  for  the  note. 
The  first,  if  error  at  all,  could  not  operate  to  the  prejudice  of  the 
appellant,  and  the  second,  whatever  may  have  been  the  former 
rule,  is  now  settled  against  this  contention  by  our  Negotiable 
Instruments  Act.    Laws  1899,  p.  350,  §  57. 

The  judgment  is  affirmed. 

Reavis,  C.  J.,  and  White,  Hadley,  Anders,  Mount  and 
Dunbar,  J  J.,  concur.  J>^  ^u^^.  . 

DelVitt  v.  Perkins  ( 1868) ,  22  Wis.  757.        §§  54-3.  58. 

Appeal  from  the  County  Court  of  Milwaukee  County. 

Action  on  defendant's  promissory  note.  The  jury,  by  direc- 
tion of  the  court,  found  for  the  plaintiff ;  and  the  defendant 
appealed  from  the  judgment.  The  question  in  dispute  will  suffi- 
ciently appear  from  the  opinion. 

B.  Mariner  and  David  S.  Ordway,  for  appellant. 
Geo.  IV.  Lakin,  for  respondent. 

Dixon,  C.  J. — The  plaintiff,  knowing  the  defendant,  and 
that  he  was  in  fair  credit  and  able  to  respond,  purchased,  shortly 


Boston  Steel  and  Iron  Co.  v.  Steuer  535 

before  its  maturity,  a  promissory  note  against  him  for  three  hun- 
dred dollars  and  interest  for  six  months,  paying  therefor  only  the 
sum  of  five  dollars.  As  between  the  defendant  and  the  payee, 
the  note  was  invalid  for  want  of  consideration.  Is  the  plaintiff 
a  bona  fide  holder  for  value,  so  as  to  protect  him  against  the 
defense  of  a  want  of  consideration  ?  We  answer,  no.  The  consid- 
eration paid  by  him  was  merely  nominal.  It  is  as  if  the  note  had 
been  given  to  him,  and  he  should  claim  the  protection  afforded  a 
bona  fide  holder  for  value.  It  appears  on  the  face  of  the  transac- 
tion that  it  was  not  a  negotiation  of  the  note  in  the  usual  course  of 
business,  but  that  the  sum  exacted  on  the  one  side  and  paid  on 
the  other  was  to  give  that  the  semblance  of  a  sale,  which  other- 
wise was  intended  as  a  mere  gift,  or,  what  is  worse,  a  shift  to  get 
the  note  out  of  the  hands  of  the  payee  so  as  to  cut  off  the  defense 
of  the  maker,  for  the  payee's  benefit.  Either  view  is  equally  fatal 
to  the  action  of  the  plaintiff,  provided  the  defense  of  a  want  of 
consideration  is  established. 

Again,  the  buying  of  a  note  against  a  solvent  maker,  the  pur- 
chaser knowing  him  to  be  such,  for  a  mere  nominal  consideration, 
is  very  strong,  if  not  conclusive,  evidence  of  mala  fides.  "It  is  con- 
structive notice  of  the  invalidity  of  the  note  in  the  hands  of  the 
seller — such  as  to  put  the  purchaser  upon  inquiry,  which  if  he 
fails  to  make,  he  acts  at  his  peril.  {Brown  v.  Taber,  5  Went., 
566;  Mathews  v.  Poythrcss,  4  Ga.,  287,  299  et  seq.,  and  cases 
cited  ;  Anderson  v.  Nicholas,  28  N.  Y.,  600;  Whitbread  v.  Jordan, 
1  Younge  &  Collyer  [Exch.],  303,  328;  Jones  v.  Smith,  1  Hare, 
68 ;  1  Parsons  on  Notes  and  Bills,  254,  259-60) .  The  proof 
offered  to  show  a  failure  of  consideration  should  have  been 
received,  and  the  case  submitted  to  the  jury  on  this  ground. 
Judgment  reversed,  and  a  new  trial  awarded. 

v^  ^- 

PAYEE  AS  HOLDER  IN  DUE  COURSE.  §  54. 

Boston  Steel  and  Iron  Co.  v.  Steuer  (1903),  183  Mass.  140, 
97  Am.  St.  Rep.  426. 

Contract  for  $1,823.25  for  work  done  and  materials  furnished 
for  a  building  of  the  defendant  numbered  811  on  Beacon  street 
in  Boston.    Writ  dated  April  11,  1899. 

At  the  trial  in  the  Superior  Court  before  Bishop,  J.,  without 
a  jury,  the  judge  excluded  certain  evidence  offered  by  the  defend- 


536  Payee  as  Holder  in  Due  Course 

ant  and  refused  to  make  certain  rulings  requested  by  the  defend- 
ant. He  found  for  the  plaintiff  in  the  sum  of  $2,043.86;  and  the 
defendant  alleged  exceptions. 

E.  Greenhood,  for  the  plaintiff". 
/.  K.  Berry,  for  the  plaintiff. 

LorinG,  J. — The  only  question  in  issue  between  the  parties 
in  this  case  is  the  right  of  the  defendant  to  be  credited  with  two 
sums  of  $200  and  $400,  respectively,  under  the  following  circum- 
stances : 

On  December  31,  1898,  the  defendant's  husband  owed  the 
plaintiff  $1,781.30,  for  iron  work  furnished  by  it  to  him  in  the 
construction  of  a  house  number  819  Beacon  street.  On  being 
pressed  for  payment,  the  defendant's  husband,  on  January  21, 
[899,  ilelivered  to  the  plaintiff  the  defendant's  check  for  $200. 
payable  to  the  plaintiff.  It  is  stated  in  the  bill  of  exceptions  that 
on  February  2,  1899,  "he  paid  the  plaintiff  the  further  sum  of 
$400  in  a  check  made  by  said  Jennie  D.  Steuer."  But  it  appears 
from  the  auditor's  report,  which  was  before  the  court  and  is 
referred  to  in  the  bill  of  exceptions,  that  the  plaintiff's  manager's 
name  was  Newcomb,  and  that  his  story  was  that  the  check  for 
$400  "was  brought  to  him  at  his  office  on  Devonshire  street  by 
Mr.  Steuer  in  response  to  further  demands  for  money,  and  that 
it  was  made  out  in  blank  and  filled  up  by  himself,  Mr.  Steuer 
being  unwilling  that  it  should  be  made  for  more  than  two 
hundred  dollars,  while  Mr.  Newcomb  insisted  that  it  should  be 
for  the  larger  amount  and  so  made  it,  with  Mr.  Steuer's  consent, 
and  applied  it  to  his  debt."  The  defendant's  story  was  "that  she 
gave  the  check  to  Mr.  Newcomb  at  her  house." 

In  addition  to  the  iron  furnished  the  defendant's  husband  for 
819  Beacon  Street,  the  defendant's  husband  had  ordered  two 
iron  columns  and  a  base  plate  from  the  plaintiff  for  another 
house,  No.  811  Beacon  Street,  which  the  plaintiff  supposed  was 
Steuer's  until  his  manager  was  told  on  March  10  that  it  belonged 
to  the  defendant's  wife.  These  two  columns  and  base  plate  were 
delivered  on  December  22,  1898,  and  at  the  rate  charged  in  the 
bill  of  items  were  worth  $150.35.  From  December  to  March 
there  were  negotiations  between  the  defendant's  husband  and  the 
plaintiff  for  a  contract  by  which  all  the  iron  work  for  81 1  Beacon 
Street  should  be  furnished  by  the  plaintiff  for  a  fixed  sum,  pay- 
ments on  account  to  be  made  as  each  floor  was  finished ;  and  on 
or  about  March  1,  1899,  the  plaintiff's  manager  submitted  to  the 
defendant  a  written  contract  to  this  effect.     On  March   10  this 


Boston  Steel  and  Ikon  Co.  v.  Steuer  537 

was  returned  by  the  defendant's  husband  with  the  statement 
already  referred  to,  that  811  Beacon  Street  belonged  to  his  wife, 
and  that  the  contract  should  be  made  with  her.  No  written  con- 
tract was  ever  made  between  the  plaintiff  and  the  defendant,  but 
the  plaintiff  went  forward  and  delivered  the  iron  work  for  two 
of  the  six  stories  of  the  house,  part  being  delivered  before  March 
10  and  part  after  that  date.  The  last  was  delivered  on  March 
1 8,  when  the  plaintiff  stopped  because  it  had  not  been  paid  for 
what  it  had  done.  Thereupon  this  action  was  brought  to  recover 
the  reasonable  value  of  the  materials  furnished  and  work  done. 

At  the  trial  the  defendant  contended  "that  the  amount  of 
said  payments  should  be  credited  to  her  in  this  action  on  the 
ground  that  they  were  payments  required  by  the  plaintiff  to  be 
made  in  advance  on  account  of  her  said  building  numbered  811 
Beacon  Street,  and  that  the  checks  were  given  to  her  said  hus- 
band, as  her  agent,  to  make  such  payments,"  and  "offered  evi- 
dence of  her  instructions  to  her  husband  as  to  the  use  and  appli- 
cation of  said  checks,  not  made  in  the  presence  of  the  plaintiff 
or  any  one  representing  him,  and  claimed  that  the  same  should 
be  admitted  in  evidence.  The  court  declined  to  admit  the  same 
and  the  defendant  duly  excepted  to  the  exclusion."  The  other 
exceptions  taken  at  the  trial  have  been  waived,  and  the  question 
raised  by  this  exception  is  the  only  matter  now  before  us. 

The  plaintiff  has  argued  that  it  did  not  appear  but  that  these 
instructions  were  given  in  a  private  conversation  between  hus- 
band and  wife.  But  on  a  fair  construction  of  the  bill  of  excep- 
tions we  do  not  think  that  the  evidence  can  be  taken  to  have 
been  excluded  on  that  ground.  It  is  stated  there  that  the 
"defendant  offered  evidence  of  her  instructions  to  her  husband 
as  to  the  use  and  application  of  said  checks,  not  made  in  the 
presence  of  the  plaintiff  or  any  one  representing  him."  This 
must  be  taken  to  be  a  statement  of  the  ground  of  the  objection, 
and  the  ruling  must  be  taken  to  be  a  ruling  that  competent  evi- 
dence was  offered  and  was  excluded  because  not  made  in  the 
presence  of  the  plaintiff  or  of  some  one  representing  it. 

The  judge  before  whom  the  case  was  tried  without  a  jury 
found  "that  neither  of  said  payments  was  required  by  the  plain- 
tiff to  be  made  in  advance  on  account  of  her  said  building  num- 
bered 811  Beacon  Street,  and  that  neither  of  them  was  made 
according  to  any  agreement  for  payment  to  be  made  on  account 
of  said  811  Beacon  Street,  and  that  no  floor  in  said  building  was 
completed  at  the  time  either  of  said  payments  was  made,  and  that 
said  payments  were  made  by  said  Bernard  Steurer  on  account 


538  Payee  as  Holder  in  Due  Course 

of  his  building  numbered  819  Beacon  Street,  and  were  received 
by  the  plaintiff  on  account  therefor.'' 

This  finding  makes  the  evidence  excluded  immaterial  so  far 
as  the  check  for  $200  is  concerned.  If  this  evidence  had  been 
admitted,  the  defendant's  case  on  the  $200  check  would  have  been 
this :  A  check  payable  to  the  plaintiff  is  handed  by  the  drawer 
to  her  husband,  to  be  delivered  by  him  to  the  plaintiff  in  payment 
of  a  debt  to  become  due  from  the  drawer  of  the  check  to  the 
payee,  and  is  fraudulently  handed  by  the  husband  to  the  payee 
of  the  check,  in  payment  of  a  debt  due  from  him  to  the  payee, 
and  is  accepted  by  the  payee  in  good  faith  in  payment  of  that  debt. 

In  such  a  case  the  pavee  of  the  check  is  a  bona  tide  purchaser 
of  the  check  for  value,  without  notice,  and  the  drawer  could  not 
set  up  her  husband's  fraud  in  defense  of  the  check,  nor  maintain^ 
an  action  for  money  had  and  received  after  payment  of  it  on 
discovering  the  fraud. 

The  fact  that  the  plaintiff  is  the  payee  of  a  negotiable  security 
does  not  prpvpnr^E]^Lll2S1  becoming  a  bona  fide  purchaser  of  it 
at  common  law,  with  all  thfi_jjghjg  incident  to  a  purchaser  to? 
value  thereof  with™11"  inntirp  That  was  decided  in  Watson  v. 
Russell,  3  B.  &  S.  34,  and  affirmed  in  the  Exchequer  Chamber 
in  the  same  case.  5  B.  &  S.  968.  To  the  same  effect  are  Poirier 
v.  Morris,  2  El.  &  Bl.  89 ;  Nelson  v.  Cowing,  6  Hill,  336,  339 ; 
Munroe  v.  Bordicr,  8  C.  B.  862,  and  Armstrong  v.  American 
Exchange  Bank,  133  U.  S.  433.  453.  The  case  of  Fairbanks  v. 
Snow,  145  Mass.  153,  might  have  been  decided  on  this  ground 
but  was  disposed  of  on  common  law  principles. 

That  payment  of  a  pre-existing  debt  makes  the  holder  a  pur- 
chaser for  value  in  this  Commonwealth  was  settled  law  before 
the  negotiable  instruments  act  was  enacted.  (Blanchard  v.  Ste- 
vens, 3  Cush.  162;  Stoddard  v.  Kimball,  6  Cush.  469;  Good- 
win v.  Massachusetts  Loan  &  Trust  Co.,  152  Mass.  189,  199; 
National  Revere  Bank  v.  Morse,  T63  Mass.  383 ;  H olden  v. 
Phoenix  Rattan  Co.,  168  Mass.  570). 

The  checks  in  question  in  the  case  at  bar  were  given  after 
the  negotiable  instruments  act  (St.  1898,  c.  533;  R.  L.  c.  73) 
went  into  effect,  and  are  governed  by  its  provisions.  The  plaintiff 
is  a  holder  in  due  course  of  the  $200  check  within  R.  L.  c.  73. 
§60.  This  section  is  taken  from  §29  of  the  English  bills  of 
exchange  act  of  1882,  and  Watson  v.  Russell  is  cited  in  Chalmers, 
Bills  of  Exchange,  (5th  ed.)  89,  as  an  example  of  a  person  who 
is  a  holder  in  due  course  within  that  section. 


Boston  Steel  and  Iron  Co.  v.  Steuer  539 

It  was  stated  by  Lord  Russell  in  Lewis  v.  Clay,  67  L.  J.  Q. 
B.  (N.  S.)  224,  that  a  payee  of  a  promissory  note  cannot  be  a 
holder  in  due  course  within  §  29  of  the  English  bills  of  exchange 
act  of  1882.  In  Herdman  v.  Wheeler,  [1902J  1  K.  B.  361,  372, 
it  was  pointed  out  that  this  statement  of  Lord  Russell's  was 
obiter,  and  it  was  also  pointed  out  that  in  Herdman  v.  Wheeler, 
as  in  Lewis  v.  Clay,  it  was  not  necessary  to  pass  on  that  point. 
The  case  of  Watson  v.  Russell,  3  B.  &  S.  34;  S.  C.  5  B.  &  S.  968, 
does  not  seem  to  have  been  brought  to  the  attention  of  the  court 
in  either  of  these  cases.  And  in  neither  case  does  the  court  seem 
to  have  taken  into  consideration  the  practice  of  a  check  being 
procured  drawn  by  another  to  be  used  in  paying  a  debt  due  from 
the  person  procuring  the  check  to  the  person  to  whom  the  debtor 
has  had  the  check  made  payable.  The  practice  is  recognized  in 
case  of  foreign  bills  of  exchange,  and  the  person  procuring  the 
bill  is  known  technically  as  the  remitter  of  it.  See  Munroe  v. 
Bordier,  8  C.  B.  862,  where  it  was  held  that  the  payee  of  a 
foreign  bill,  who  took  it  from  the  remitter  of  it  for  value,  was 
a  bona  fide  purchaser  for  value.  It  was  this  practice  which  was 
applied  in  Watson  v.  Russell,  3  B.  &  S.  34,  in  case  of  a  check. 
In  our  opinion,  a  check  received  by  the  payee  named  in  it,  in 
payment  of  a  debt  due  from  the  remitter  of  the  check,  is  received 
by  a  holder  in  due  course  within  §  69  of  the  negotiable  instru- 
ments act,  St.  1898,  c.  533,  R.  L.  c.  73,  and  that  it  is  so  even 
if  we  should  follow  the  decision  made  in  Herd  man  v.  Wheeler, 
[1902]  1  K.  B.  361,  and  hold  that  a  payee  never  can  be  a  holder 
in  due  course  to  whom  the  bill  has  been  "negotiated"  within  the 
last  clause  of  §  31  of  our  act,  R.  L.  c.  73,  which  is  taken  from  §  20 
of  the  English  bills  of  exchange  act  of  1882  (45  &  46  Vict.)  c.  61. 
The  rule  that  payment  of  a  pre-existing  debt  makes  the  holder  a 
holder  for  value  was  adopted  in  R.  L.  c  73,  §  42. 

But  so  far  as  the  check  for  $400  is  concerned,  we  are  of  3-  v^&\    <^-»  £«, 
opinion  that   the  evidence   should   have   been   admitted.     If  the  -Oo^  ft  M-  <n> 
defendant's  story  were  found  to  be  true,  namely,  that  she  handed  c_X/-»^>ri . 
the  check   to  the   plaintiff's  manager   at   her   house,   this   check 
would  stand  on  the  same  footing  as  the  other.     But  the  story  of 
the  plaintiff's  manager  was  that  the  check  was  brought  to  him  by 
the  defendant's  husband,  signed  in  blank  by  the  defendant,  and 
that  it  was  filled  up  by  him  for  the  sum  of  S400.  with  the  hus- 
band's consent.    We  assume  in  favor  of  the  plaintiff  that  this  is 
to  be  interpreted  to  mean  that  the  only  blank  in  the  check,  when 
it   was  brought   to   the   plaintiff's   manager   bv   the   defendant's 
husband,  was  in  the  amount  for  which  it  was  to  be  drawn. 


540  Payee  as  Holder  in  Due  Course 

It  had  been  held  in  England  before  the  bills  of  exchange  act 
in  1882,  that  such  a  piece  of  paper  is  not  a  check ;  that  one  who 
buys  it  buys'an  incomplete  instrument 'and ""his  rights  depeniL 
upon  the  real  authority  which  the  signerT^rTfTfact  given  in 
TITFlriatter.  Awde  v.  Dixon,  6  Exch.  869.  See  also  Hatch  v. 
Sanies,  2  Sm.  &  G.  147;  Hogarth  v.  Latham,  3  Q.  B.  D.  643; 
Watkin  v.  Lamb,  85  L.  T.  (N.  S.)  483;  franco  v.  Clark,  26  Ch. 
D.  257,  262.  And  see  Ledwich  v.  McKim,  53  N.  Y.  307.  Such 
an  incomplete  instrument  is  prima  facie  authority  to  fill  in  the 
blank.  Crutchly  v.  Mann,  5  Taunt.  529;  Swan  v.  North  British 
Australasian  Co.,  2  H.  &  C.  175,  184.  But  this  prima  facie 
authority,  as  we  have  said,  may  be  met  by  evidence  of  what 
authority  was  in  fact  given,  as  was  done  in  Awde  v.  Dixon,  6 
Exch.  869.  If  the  blanks  are  filled  up  before  the  instrument  is 
negotiated,  it  does  not  lie  in  the  maker's  mouth  to  set  up  that 
it  was  incomplete  when  delivered  by  him.  In  such  a  case,  a  plain- 
tiff who  buys  for  value  without  notice  gets  the  rights  of  a  bona 
fide  purchaser  for  value  of  a  negotiable  instrument ;  and  the  fact 
that  there  was  no  authority  for  filling  up  the  blanks  as  they  were 
filled  up,  or  the  fact  that  the  paper  was  otherwise  wrongfully 
dealt  with,  is  no  defence.  Schultz  v.  Astley,  2  Bing.  N.  C.  544; 
Foster  v.  Mackinnon,  L.  R.  4  C.  P.  704,  712. 

In  this  Commonwealth  it  was  held  on  the  other  hand  that  a 
note  with  a  blank  for  the  payee's  name  was  a  promissory  note 
and  not  an  incomplete  paper  which  might  be  made  into  a  prom- 
issory note.  Ives  v.  Farmers'  Bank,  2  Allen,  236.  And  in  Frank 
v.  Lilienfeld,  33  Gratt.  377,  it  was  held  that  the  purchaser  in 
good  faith  of  a  note  in  printed  form  indorsed  by  the  defendant, 
where  the  date,  payee's  name  and  amount  had  been  left  blank, 
had  an  absolute  right  to  fill  in  the  amount  advanced  thereon  and 
to  fill  up  the  other  blanks.  It  also  has  been  held  here,  as  it  has 
been  held  in  England,  that  such  a  blank,  in  the  absence  of  other 
evidence,  might  be  filled  in  by  a  bona  fide  purchaser;  see  Andro- 
scoggin Bank  v.  Kimball,  10  Cush.  373 ;  and  that  a  bona  fide 
purchaser  of  such  a  paper  which  is  filled  before  it  is  negotiated, 
has  the  rights  of  a  purchaser  for  value  without  notice.  See 
ll'hitmore  v.  Xickcrson,  125  Mass.  496;  Binney  v.  Globe  National 
Bank,  150  Mass.  574.  See  also  in  this  connection  Herdman  v. 
Wheeler,  [1902]  1  K.  B.  361. 

It  is  not  necessary  to  consider  how  a  blank  check  would  be 
dealt  with  in  Massachusetts  at  common  law,  where  the  amount 
in  place  of  the  name  or  date  is  lacking.  The  negotiable  instru- 
ments act,  R.  L.  c.  73,   §31,  adopted  the  English  law  on  this 


LaDue  v.  Bank  ok  Kasson 


541 


point,  and  it  follows  that  if  Xcwcomb's  story  is  to  be  believed, 
the  blank  check  brought  to  him  must  be  treated  as  an  incom- 
plete instrument  and  not  as  a  check. 

The  defendant  further  contends  that  it  was  inadmissible  to 
show  the  real  authority  given  to  the  husband  in  the  absence  of 
the  plaintiff,  and  cites  in  support  of  that  contention  Markey  v. 
Mutual  Benefit  Ins.  Co.,  103  Mass.  78,  93,  and  Byrne  v.  Massa- 
soit  Packing  Co.,  137  Mass.  313.  These  are  cases  where  the  act 
done  was  within  the  ostensible  scope  of  the  authority  given  an 
agent,  and  for  that  reason  the  real  authority  could  not  be  invoked. 
The  only  act  relied  on  as  giving  ostensible  authority  to  the  hus- 
band in  the  case  at  bar  was  putting  him  in  possession  of  the 
blank  check.  There  was  no  more  ostensible  authority  here  than 
there  was  in  Awde  v.  Dixon,  6  Exch.  869;  Hogarth  v.  Latham, 
3  Q.  B.  D.  643,  or  Wat  kin  v.  Lamb,  85  L.  T.  (N.  S.)  483.  An 
incomplete  check  gives  an  authority  to  fill  it  up  which  is  only  a 
prima  facie  authority.  It  does  not  import  an  ostensible  authority 
to  fill  it  up  which  is  absolute. 

The  plaintiff's  rights  under  the  blank  check  for  $400,  and  to 
the  monev  received   for  it,  depend   upon  the  authority  actually 


given  by  the  defendant  when   she   signed   it,   and  the  evidence 

offered    should    have    been    admitted    in    respect    of    the    credit 

claimed  for  the  $400  paid  under  the  blank  check. 

The  entry  must  be, 


Exceptions  su/tained.^  ^^__  ^  $  ^  a 


WrHEN   PERSON  NOT  DEEMED  HOLDER  IN  DUE  COURSE. 


§  55- 


La  Due  v.  Bank  of  Kasson  (1883),  j/  Minn.  5?. 

Appeal  by  plaintiff  from  an  order  of  the  district  court  for 
Dodge  county,  refusing  a  new  trial, — after  a  trial  by  Buckham, 
J.,  a  jury  being  waived.     The  case  is  stated  in  the  opinion. 

Jones  &  Gore,  for  appellant. 
Chas.  C.  Willson,  for  respondent. 

Mitchell,  J.  At  Kasson,  Minnesota,  on  the  15th  of  October, 
1 88 1,  the  defendant  drew  its  draft  or  bill  of  exchange  for  $500  on 
the  Ninth  National  Bank  of  New  York,  payable  on  demand,  to 
the  order  of  plaintiff,  and.  for  value,  delivered  the  same  to  the 
payee,  who,  on  the  same  day,  indorsed  it  to  one  Edison,  who  held 


54^  Person  Not  Deemed  Holder  in  Due  Course 

M  jj_:c      it  until  the  8th  of   March,   1882,  without  presentation   for  pay- 

^    • .  .  -, '  ^^BLment,  and,  on  the  day  last  named,  indorsed  it  to  one  Jordan,  who, 

on  the  nth  of  the  same  month,  indorsed  it  to  the  Exchange  Bank 

^j.     Vj^s-Av^.      of  Louisiana.  Missouri,  which  caused  it  to  be  presented  for  pay- 

^♦^*  -^*-Ss      ment  on  the  15th  of  the  month,  when  payment  was  refused,  and 

^^V^-r^vA  the  draft  protested.     On  the  4th  of  April,  the  Exchange  Bank 

^A>vvA-v-^-f^3-^;rans^erre<^  ft  to  plamtiff-     No  explanation  is  given  why  Edison 

i^%i^jZ^2jA>    nr'('  lnc  clrait  so  ^ong  without  presenting  it  for  payment,  nop 

C^Tj^tev^  ^     does   ft   aPPear   that   either  Jordan   or   any   of   the    subsequent 

j^^_^^3~       indorsees  asked  for  any  explanation  of  this  fact  when  they  pur- 

^-yv^ta.  o,  i^*S<±  chased  it.    In  October,  1881,  immediately  after  the  draft  in  ques- 

L>ju~»~^»»w1is-L       tion  had  been  transferred  to  him,  Edison  absconded  from  the 

state,  leaving  debts  unpaid,  among  which  was  a  promissory  note 

for  $500  and  interest,  dated  September  26,  1881,  payable  in  30 

days  to  the  order  of  defendant  bank,  and  which  it  then  held  and 

still  holds,  and  which  has  never  been  paid.     About  the  first  of 

v^«^.  a-.-*  Vv-o     November,  1881,  the  defendant,  having  ascertained  that  Edison 

t*c^£°~W~  was  tne  owner  of  the  draft  in  question,  notified  the  drawee  not 

^to  pay  it.     This  last  fact  is,  perhaps,  not  material.     Upon  being 

,         -     sued  upon  the  draft,  the  defendant  now  seeks  to  set  off  against  it 

^"Y^*^        w.  the  promissory  note  against  Edison  already  referred  to,  and  the 

'  only  question  in  the  case  is  whether,  under  the  facts  stated,  this 

can  be  done.     It  may  be  here  remarked  that  La  Due,  the  payee, 

was  clearly  discharged  from  liability  as  indorser,  by  the  delay  of 

five  months  in  presenting  the_  draft   for  payment^  hence,  he  can 

claim  no  rights  as  an  indorser  who  has  been  compelled  to  pay. 

His  purchase  of  the  draft  from  the  Exchange  Bank  was  a  purely 

voluntary  act,  and  he  has  now  no  greater  rights  under  it  than 

if  he  had  never  before  been  a  party  to  the  instrument. 

According  to  the  commercial  law  in  England,  and  in  prob- 
ably all  those  states  where  a  different  rule  has  not  been  fixed 
by  statute,  an  indorsee  of  an  overdue  bill  or  negotiable  note  takes 
it  subject  only  to  such  equities  or  defences  as  attached  to  the  hi  IT 
or  note  itself,  and  not  to  claims  arising  out  of  collateral  matters' 
or  independent  transactions,  whether  they  arose  against  the  payee 
or  an  intermediate  holder;  the  idea  being  that  such  commercial" 
paper,  although  overdue,  did  not  lose  its  negotiability.    Our  state. 
following  the  example  of  many  others,  has  by  statute  entirely 
changed  this  rule.    Gen.  St.  1878,  c.  66,  §27,  provides:   "In  the 
case  of  an  assignment  of  a  thing  in  action,  the  action  by  the 
assignee   is   without  prejudice   to  any   set-off   or   other   defence 
existing  at  the  time  of,  or  before  notice  of,  the  assignment ;  but 
this  section  does  not  apply  to  a  negotiable  promissory  note  or  bill 


LaDue  v.  Bank  of  Kasson  543 

of  exchange,  transferred  in  good  faith  and  upon  good  considera- 
tion before  due."  The  effect  of  this  statute,  clearly,  is  to  place 
an  overdue  bill  or  note  upon  the  same  footing  as  any  other  chose* 
Tn  action,  and,  if  it  Be  assigned  after  due,  a  set-off  to  the  amount 
of  the  note  or  draft  may  be  made  <>l'  any  demand  existing  against 
any  person  who  has  assigned  or  transferred  such  note  or  hill 
after  it  became  due.  if  the  demand  is  such  as  might  have  been  set_ 
off  against  the  assignor  while  the  note  or  bill  belonged  to  him. 
A  set-off  arising  out  of  an  independent  transaction  against  an 
intermediate  holder  is  thus  placed  upon  the  same  footing  as  an 
equity  attaching  to  the  bill  or  note  itself  against  the  original 
payee.  This  same  rule  is  laid  down,  in  somewhat  different  lan- 
guage, in  the  provision  regarding  set-off  in  justice's  court.  Gen. 
St.  1878,  c.  65,  §  40.  To  illustrate,  suppose  Edison  had  been  the 
payee,  and  had  obtained  the  draft  by  fraud  and  without  consid- 
eration, or  had  received  payment  on  it  while  he  owned  it,  but  by 
oversight  or  mistake  it  remained  in  his  hands.  These  would  have 
been  defences  attached  to  the  draft  itself,  as  between  the  original 
parties,  and,  if  the  draft  was  overdue  when  Edison  indorsed  it 
to  Jordan,  defendant  could  have  set  them  up  even  under  the 
former  rule  against  the  draft  in  the  hands  of  Jordan,  or  those  to 
whom  he  subsequently  transferred  it.  But  now,  under  the  stat- 
ute, defendant  could  set  off  this  note,  although  it  arises  out  of 
an  independent  matter,  against  an  intermediate  holder,  because 
it  is  a  demand  which  might  have  been  set  off  against  Edison 
while  the  draft  belonged  to  him,  had  he  sued  on  it.  Linn  v.  Rugg, 
19  Minn.  145,  (181)  ;  Martin  v.  Pillsbury,  23  Minn.  175;  Harris 
v.  Burwell,  65  N.  C.  584. 

Such  a  rule  may  render  precarious  the  business  of  dealing  in 
overdue  paper,  especially  when  it  has  passed  after  maturity 
through  the  hands  of  several  holders.  The  policy  of  such  a  law 
is  exclusively  for  the  legislature,  but  we  may  suggest  that  we  see 
no  reason  why  overdue  commercial  paper  should  not  be  placed 
on  the  same  footing  as  any  other  chose  in  action.  Notes  and  bills 
of  exchange  are  only  treated  as  business  paper  when  negotiated 
before  maturity.  When  overdue  they  are  dishonored.  In  the 
principal  commercial  states  of  the  Union,  such  as  New  York,  this 
same  rule  has  long  been  established  by  statute.  Hence,  our  state 
cannot  be  charged  with  having  adopted  a  rule  in  opposition  to  the 
judgment  or  usages  of  the  business  world. 

The  only  question  left,  then,  is  whether  this  draft  was  over- 
due when  Edison  indorsed  it  to  Jordan  on  the  8th  of  March,  1882, 
four  months  and  twenty-three  days  after  its  date. 


544  Person  Not  Deemed  Holder  in  Due  Course 

In  the  case  of  a  bill,  note,  or  check,  payable  on  demand,  no 
exact  day  of  payment  is  fixed  in  the  instrument.     The  general 
.  rule  is  that  it  must  be  presented  for  payment  within  a  reasonable 
time,  having  in  view  ordinary  business  usages,  and  the  purposes^ 
which  paper  of  that  class  is  intended  to  subserve. 

The  term  "overdue,"_as  applied  to  a  demand  bill  of  exchange,_ 
i-  used  in  different  conuections_in  each  of  which  it  has  a  differ- 
ent meaning;  and  the  failure  to  keep  these  distinctions  in  mind 
has  perhaps  led  to  some  misapprehension  regarding  the  present 
case>  Somtimes  jt  is  used  m  reference  to  a  right  of  action  against 
a  drawer  or  indorser.  In  that  connection  a  bill  is  not  overdue, 
until  presented  to  the  drawee  for  payment,  and  payment  refused. 
Sometimes  the  term  is  used  in  considering  whether  an  indorser. 
lias  been  released  by  a  failure  of  the  holder  to  present  the  bill  for_ 
payment,  and  to  give  the  indorser  notice  of  its  dishonor  within  a 
reasonable  timeCJAVgain,  the  term  is  applied  to  a  bill  which  has 
come  into  the  hands  of  an  indorser  so  long  after  its  issue  as  to 
charge  him  with  notice  of  its  dishonor,  and  thus  subject  it  in  his 
hands  to  the  defences  which  the  drawer  had  against  it  in  the 
hands  of  the  assignor.  It  is  in  this  last  connection  that  the  term 
"overdue"  is  considered  in  the  present  case.  That  in  this  case. 
a  bill  may  be  said  to  be  overdue,  although  it  has  never  been  in 
fact  presented  to  the  drawee  for  pajyn^ent,  is  recognized  every- 
where throughout  the  books,  and  will  be  apparent,  we  think,  on  a 
moment's  reflection.  Suppose  a  draft  has  been  held  by  the  payee 
five  years,  without  ever  having  been  presented  to  the  drawee  for 
pavment,  and  is  then  indorsed  to  another  party.  It  would  not  be 
due  so  as  to  give  a  right  of  action  against  the  drawer,  because  his 
contract  is  only  to  pay  in  case  it  is  not  paid  by  the  drawee  on 
presentation.  But  there  would  be  no  doubt  that  it  would  be  over- 
due or  dishonored,  so  as  to  charge  it  in  the  hands  of  the  indorsee 
with  any  defences  which  the  drawer  had  against  it  in  the  hands 
of  the  payee,  although,  when  he  took  it,  it  had  never  been  pre- 
sented for  payment.  The  retention  of  a  demand  draft  so  long  a 
time  without  presentment,  when  no  defence  exists  against  it, 
is  so  unusual  and  contrary  to  business  usages  that  this  circum- 
stance would  be  held  to  charge  the  indorsee  with  notice  when  he 
purchased  the  draft  that  it  was  dishonored.  The  lapse  of  time 
would  in  such  case  be  so  great  as  to  put  a  purchaser  upon  inquiry 
as  to  the  reason  why  it  was  still  outstanding  and  unpaid. 

The  cases  are  almost  innumerable  in  which  it  has  been  held 
that  parser  payable  on  demand  had  been  outstanding  so  long  when. 
transferred,  as  to  be  deemed  overdue  and  dishonored^  so  as  to 


LaDue  v.  Bank  of  Kasson  545 

subject  it,  in  the  hands  of  the  purchaser,  to  any  defences  which 
the  maker  or  drawer  had  against  it  in  the  hands  of  the  payee; 
and  in  none  of  these  cases  is  the  question  whether  or  not  the 
paper  had  been,  before  the  transfer,  presented  for  payment  to 
the  maker  or  drawee,  referred  to  as  at  all  material.  Down  v. 
Hailing,  4  B.  &  C.  330 ;  First  Nat.  Bank  v.  Needham,  29  Iowa, 
249;  Cowing  v.  Altman,  71  N.  Y.  435;  Sylvester  v.  Crapo,  15 
Pick.  92;  Ranger  v.  Carey,  1  Met.  369;  Hcrrick  v.  Wolverton, 
41  N.  Y.  581 ;  Story  on  Prom.  Notes,  §  207  and  note ;  Thompson 
v.  Hale,  6  Pick.  258;  American  Bank  v.  Jenncss,  2  Met.  288; 
Carlton  v.  Bailey,  27  N.  Ii.  230;  Parker  v.  Tattle,  44  Me.  459; 
Nevins  v.  Townsend,  6  Conn.  5;  Camp  v.  Scott,  14  Vt.  387; 
Morey  v.  Wakefield,  41  Vt.  24. 

That  injletermining  whether  an  indorsee  took  a  demand  note 
or  bill  asjlishonored  and  overdue  paper,  subject  to  all  equities  or 
defences,  the  test  is  the  length  of  time  it  has  been  outstanding, 
and  not  whether  it  has  in  fact  been  presented  for  payment,  may 
be  illustrated  in  another  way.  Suppose  a  draft  had  in  fact  been 
presented  for  payment,  and  payment  refused,  on  the  very  day  it 
was  issued,  it  would  then  be  overdue  as  to  the  drawer,  so  that  an 
action  would  then  lie  against  him.  But  suppose,  immediately  after 
such  presentation,  and  on  the  same  day,  the  holder  should  indorse 
the  draft  to  another,  who  took  it  in  good  faith,  for  value,  without 
notice  of  this  actual  dishonor;  clearly  such  indorsee  would  not 
take  it  as  overdue  paper,  subject  to  the  equities  or  defences  against 
it  in  the  hands  of  the  former  holder,  because,  a  reasonable  time 
for  its  presentation  not  having  expired,  there  was  nothing  to  put 
him  upon  inquiry,  or  to  charge  him  with  notice  of  such  equities. 
Himmclman  v.  Hotaling,  40  Cal.  III.  In  fact,  in  determining 
whether  an  indorsee  takes  such  paper  as  overdue  paper,  subject^ 
to  such  defences  or  equities,  the  question  of  actual  demand  and_ 
dishonor  does  not  enter  into  the  discussion.^  The  point  of  inquiry 
is,  had  the  paper  been  outstanding  so  long  after  its  date  as  to  put 
the  purchaser  upon  inquiry,  and  charge  him  with  notice  that  there 
is  some  defence  to  it?  In  view  of  the  well-known  fact  that  bills 
of  exchange  are  not  always  transmitted  immediately  for  pay- 
ment, but  first  pass  through  the  hands  of  several  intermediate 
holders  in  the  ordinary  course  of  business,  and  in  other  cases  are 
purchased  by  travellers  to  be  carried  with  them  instead  of  cur- 
rency or  coin,  to  be  negotiated  as  occasion  may  require,  we  are 
not  disposed  to  lay  down  any  narrow  rule  on  this  subject.  But 
in  this  case  we  think  that  the  fact  that  this  draft  was.  without  any 
explanation  of  the  reason,  found  outstanding  nearly  five  months 


546  Notice  Before  Full  Amount  Paid 

V  "  -  after  its  date,  fully  justified  the  trial  court  in  holding-  it  overdue 

^       "  rand  dishonored  when  Jordan  took  it,  so  as  to  charge  it  in  his 

^. %i jOw-. vU*j*.  Rands,  or  the  hands  of  those  who  hold  under  him,  with  an? 
<*~.  v-->^  defence  or  set-off  which  the  drawer  had  against  it  in  the  hands 
y^^TT^of  Edison,  Order  affirmed. 


notice  before  full  amount  paid.  §  56. 


^y-  Vn  <^i$~*^ 


Dresser  v.  Missouri  etc.  R.  R.  Const.  Co.  (18/6),  03  U.  S.  02. 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Dis- 
trict of  Iowa. 

Submitted  on  printed  arguments  by  Mr.  James  Grant,  for 
the  plaintiff  in  error,  and  by  Mr.  George  G.  Wright,  contra. 

Mr.  Justice  Hunt  delivered  the  opinion  of  the  court. 

This  action  is  brought  upon  three  several  promissory  notes 
made  by  the  Missouri  and  Iowa  Railway  Construction  Company, 
dated  Nov.  1,  1872,  payable  at  two,  three,  and  four  months,  to  the 
order  of  William  Irwin,  for  the  aggregate  amount  of  $10,000. 

The  defence  is  made  that  they  were  obtained  by  his  fraudu- 
lent representations. 

But  a  single  point  requires  discussion.  Conceding  that  the 
present  plaintiff  received  the  notes  before  maturity,  and  that  his 
holding  is  bona  tide,  the  question  is  as  to  the  amount  of  his  recov- 
ery. 

Under  the  ruling  of  the  court  he  recovered  $500.  His  con- 
testation is,  that  he  is  entitled  to  recover  the  face  of  the  note,  with 
interest. 

After  the  evidence  was  concluded,  the  plaintiff  asked  the 
court  to  charge  the  jury,  that  if  they  believed,  from  the  evidence, 
that  the  plaintiff  purchased  the  notes  in  controversy  of  William 
Irwin  for  a  valuable  consideration,  on  the  1st  of  November,  1872 
and  paid  v$500,  part  of  the  consideration,  on  21st  of  January,  1873. 
before  any  notice  of  any  fraud  in  the  contract,  he  was  entitled  to 
recover  the  whole  amount  of  the  notes ;  and  the  court  refused  this 
instruction.     But  the  court  charged  the  jury, — 

"That,  in  the  first  place,  the  jury  must  find  that  there  was 
fraud  in  the  inception  of  the  notes  as  alleged ;  and  that  if  the 
defendants  failed  to  satisfy  the  jury  of  that  fact,  the  whole  defence 
fails. 

That  if  the  fact  of  fraud  be  established,  and  the  jury  find 


Dresser  v.  Missouri  R.  R.  Construction  Co.  547 

from  the  evidence  that  the  plaintiff  paid  $500  upon  the  notes 
without  notice  of  fraud,  and  that  after  receiving  notice  of  the 
fraud  the  plaintiff  paid  the  balance  due  upon  the  notes,  he  is  pro- 
tected only  pro  tan  to;  that  is,  to  the  amount  paid  before  he 
received  notice." 

It  does  not  appear  that,  upon  the  purchase  of  the  notes  in 
suit,  the  plaintiff  gave  his  note  or  other  obligation  which  might  by 
its  transfer  subject  him  to  liability.  His  agreement  seems  to  have 
been  an  oral  one  merely, — to  pay  the  amount  agreed  upon,  as 
should  be  required ;  and  he  had  paid  $500,  and  no  more,  when 
notice  of  the  fraud  was  brought  home  to  him. 

The  argument  of  the  plaintiff  in  error  is  that  negotiable 
paper  may  be  sold  for  such  sum  as  the  parties  may  agree  upon, 
and  that,  whether  such  sum  is  large  or  small,  the  title  to  the  entire 
paper  passes  to  the  purchaser.  This  is  true,  and  if  the  plaintiff 
had  bought  the  notes  in  suit  for  $500,  before  maturity  and  without 
notice  of  any  defence,  and  paid  that  sum,  or  given  his  negotiable 
note  therefor,  the  authorities  cited  show  that  the  whole  interest 
in  the  note  would  have  passed  to  him,  and  he  could  have  recovered 
the  fuTTamount  due  upon  them.  {Fowler  v.  Strickland,  107 
Mass.  552;  Park  Bank  v.  Watson,  42  N.  Y.  490;  Bank  of  Michi- 
gan v.  Green,  33  Iowa,  140).  The  present  case  differs  from  the 
cases  referred  to  in  this  respect.  The  notes  in  question  were  pur- 
chased upon  an  unexecuted  contract,  upon  which  $500  only  had 
been  paid  when  notice  of  the  fraud  and  a  prohibition  to  pay  was 
received  by  the  purchaser.  The  residue  of  the  contract  on  the 
part  of  the  purchaser  is  unperformed,  and  honesty  and  fair  deal- 
ing require  that  he  should  not  perform  it ;  certainly,  that  he  should 
not  be  permitted,  by  performing  it,  to  obtain  from  the  defendants 
money  which  they  ought  not  to  pay.  As  to  what  he  pays  after 
notice,  he  is  not  a  purchaser  in  good  faith.  He  then  pays  with 
"knowledge  ot  the_fnmd,  to  which  he  becomes  a  consenting  party. 
One  who  pays  with  knowledge  of  a  fraud  is  in  no  better  position 
than  if  he  had  not  paid  at  all.  He  has  no  greater  equity,  and 
receives  no  greater  protection.  Such  is  the  rule  as  to  contracts 
generally.  In  the  case  of  the  sale  of  real  estate  for  a  sum  payable 
in  instalments,  and  circumstances  occur  showing  the  existence  of 
fraud,  or  that  it  would  be  inequitable  to  take  the  title,  the  pur- 
chaser can  recover  back  the  sum  paid  before  notice  of  the  fraud, 
but  not  that  paid  afterwards.  {Barnard  v.  Campbell,  53  N.  Y. 
73;  Lewis  v.  Bradford,  10  Watts,  82;  Juvenal  v.  Jackson,  2  Har- 
ris, 529;  id.  430;  Youst  v.  Martin,  3  S.  &  R.  423,  430). 

In  Weaver  v.  Barden,  49  N.  Y.  291,  the  court  use  this  Ian- 


548  Notice  Before  Full  Amount  Paid 

guage:  "To  entitle  a  purchaser  to  the  protection  of  a  court  of 
cquitv.  as  against  a  legal  title  or  a  prior  equity,  he  must  not  only 
be  a  purchaser  without  notice,  but  he  must  be  a  purchaser  for  a 
valuable  consideration;  that  is,  for  value  paid.  Where  a  man 
purchases  an  estate,  pays  part  and  gives  bonds  for  the  residue, 
notice  of  an  equitable  incumbrance  before  payment  of  the  money, 
though  after  giving  the  bond,  is  sufficient.  (Touz-ille  v.  Naish, 
3  P.  Wins.  306;  Story  v.  Lord  Windsor,  2  Atk.  630).  Mere 
security  to  pay  the  purchase  price  is  not  a  purchase  for  a  valu- 
able consideration.  (Hardingham  v.  Nicholls,  3  Atk.  304;  Maun- 
drell  v.  Maundrell,  10  Ves.  246,  271  :  Jackson  v.  Cadwell,  1 
Cowen,  622;  Jewell  v.  Palmer,  7  J.  C.  65).  The  decisions  are 
placed  upon  the  ground,  according  to  Lord  Hardwicke,  that  if 
the  money  is  not  actually  paid  the  purchaser  is  not  hurt.  He  can 
be  released  from  his  bond  in  equity." 

The  plaintiff  here  occupies  the  same  position  as  the  bona  fide 
purchaser  of  the  first  of  a  series  of  notes,  of  which,  after  notice 
of  a  fraud,  he  purchases  the  rest  of  the  series.  He  is  protected 
so  far  as  his  good  faith  covers  the  purchase,  and  no  farther. 

Upon  receiving  notice  of  the  fraud,  his  duty  was  to  refuse 
further  payment ;  and  the  facts  before  us  required  such  refusal  by 
him.    Authorities  supra. 

Crandell  v.  Vickcry,  45  Barb.  156,  is  in  point.  Holdridge  had 
obtained  the  indorsement  by  Vickery  of  his  (Holdridge's)  notes 
by  false  and  fraudulent  representations.  These  notes  were  trans- 
ferred to  Crandall  without  notice  or  knowledge  of  the  fraud,  he 
giving  to  Holdridge  several  checks  for  the  amount,  upon  the 
understanding  that  they  were  not  to  be  presented  for  payment, 
but  when  the  money  was  wanted,  he  was  to  give  new  checks  as 
needed.  Before  giving  the  new  checks,  plaintiff  was  informed 
of  the  fraud,  and  requested  not  to  make  payment,  or  to  give  his 
checks.  I  te  did,  however,  give  his  new  checks,  according  to  the 
original  agreement,  and  brought  suit  upon  the  notes  against  Vick- 
ery, the  indorser. 

It  was  held  that  he  was  not  a  bona  fide  holder,  for  the  reason 
that  the  transaction  was  executory  when  he  received  notice  of 
the  fraud;  that  he  had  then  parted  with  no  value;  that  the  real 
obligations  were  given  afterwards,  and  under  circumstances  that 
afforded  no  protection. 

That  case  is  stronger  for  the  holder  than  the  one  before  us, 
in  the  fact  that  checks  were  there  given  on  the  original  trans- 
action, which  might  have  been  presented  or  passed  off  to  the  pre- 


Porter   et  al.  v.  Harpy  et  al.  549 

judice  of  the  maker;  while  here  the  transaction  was  oral  through- 
out. 

To  the  same  purport  in  principle,  although  upon  facts  s* 
what  different,  are  the  cases  of  Garland  v.  The  Salem  Bank,  9 
Mass.  408;  The  Fulton  Bank  v.  The  Phoenix  Bank,  1  Hall,  562, 
and  White  v.  Springfield  Bank,  3  Sandf.  S.  C.  227. 

The  cases  are  numerous  that  wrhere  a  bona  fide  holder  takes 
a  note  misappropriated,  fraudulently  obtained,  or  without  con- 
sideration,  as  collateral  security,  he  holds  for  the  amount  advanced 
upon  it,  and  for  that  amount  only.     (Williams  v.  Smith,  2  Hill, 

3o0- 

In  Allaire  v.  Hartshorn,  1  Zabr.  663,  the  case  was  this: 
Hartshorn  sued  Allaire  on  a  note  of  $1,500  at  ninety  days,  made 
by  Allaire.  It  was  proved  that  the  note  had  been  misapplied  by 
one  Pettis,  to  whom  it  had  been  entrusted ;  that  he  had  pledged 
to  the  plaintiff  as  security  for  $750  borrowed  of  him  on  Hege- 
man's  check,  and  also  as  security  for  a  $400  acceptance  of  another 
party  then  given  up  to  Pettis. 

On  the  trial,  the  court  charged  the  jury,  that,  if  any  consider- 
ation was  given  by  the  plaintiff  for  the  note,  "they  should  not 
limit  their  verdict  to  the  amount  so  given,  but  should  find  the 
whole  amount  due  on  the  face  of  the  note."  The  case  was  carried 
to  the  court  of  errors  and  appeals  of  the  State  of  New  Jersey, 
upon  an  exception  to  this  charge.  The  court  reversed  the  judg- 
ment, holding  that,  although  a  bona  fide  holder,  Hartshorn  could 
recover  only  the  amount  of  his  advances. 

The  case  before  us  is  governed  by  the  rule  that  the  portion 
of  an  unperformed  contract  which  is  completed  after  notice  of 
a  fraud  is  not  within  the  principle  which  protects  a  bona  fide  pur- 
chaser. 

No  respectable  authority  has  been  cited  to  us  sustaining  a 
contrary  position,  nor  have  we  been  able  to  find  any.  The  judg- 
ment below  is  based  upon  authority,  and  upon  the  soundest 
principles  of  honesty  and-£ear  dealing. 

It  has  our  concurrence  and  is  affirmed. 


a5~A/w^ 

FRAUD  AMOUNTING  TO  WANT  OF  CONTRACT  ;  WHEN  TITLE 

DEFECTIVE.  §  57- 

Porter  et  al  v.  Hardy  et  al.  (1901),  10  N.  D.  557.   §§  126,  127. 

Appeal  from  District  Court,  Wells  county ;  Glaspell,  J. 
Action  by  Frank  J.  Porter  and  others,  doing  business  under 
the  firm  name  of  Porter,  Melick  &  Co.,  against  L.  M.  Hardy  and 


550  Fraud  Amounting  to  Want  of  Contract 

thers.   From  a  judgment  in  favor  of  defendants,  plaintiffs  appeal. 
Affirmed. 

George  .  I.  Bangs  and  Cochrane  &  Corliss,  for  appellants. 
/•'.  Baldwin,  for  respondents. 

Young,  J. —  Plaintiffs,  for  cause  of  action,  allege  that  on  May 
5,  i8(^,  the  defendants  executed  and  delivered  their  promissory 
note,  dated  on  that  day,  wherein,  for  value  received,  they  prom- 
ised  to  pay  one  E.  Cooper,  or  order,  $700.  on  October  1,  1894, 
S700  on  (  October  1,  1895,  and  $600  on  October  1,  1896,  with 
interest  at  the  rate  of  8  per  cent,  per  annum  until  paid,  payable 
annually  ;  and  that  plaintiff  is  indorsee  in  due  course  of  said  note; 
and  that  the  same  has  not  been  paid.  The  defendants,  who  are 
ten  in  number,  answer  jointly.  Broadly  stated,  their  defense  is 
that  they  did  not  execute  the  note  sued  upon.  The  answer  admits 
the  genuineness  of  their  signatures,  but  alleges  a  fraudulent  and 
material  alteration  of  the  instrument  to  which  such  signatures 
were  originally  attached,  and  a  total  want  of  consideration.  The 
trial  was  to  the  court  without  a  jury,  under  §  5630,  Rev.  Codes, 
1899.  Judgment  was  ordered  and  entered  for  defendants.  Plain- 
tiff has  appealed  from  the  judgment,  and  in  a  statement  of  case 
settled  under  said  section  has  specified  for  retrial  by  this  court  the 
eighteenth  finding  of  fact  made  by  the  trial  court,  which  finding  is 
that  "the  defendants  in  signing  said  paper  in  the  manner  and 
form  in  which  it  was  presented  to  them,  were  not  guilty  of  negli- 
gence."   All  other  findings  of  fact  are  conceded  to  be  correct. 

The  following  facts  material  to  a  determination  of  the  ques- 
tions presented  by  this  appeal  are  established  by  the  findings  which 
are  unchallenged :  On  or  about  May  5,  1893,  one  R.  A.  White- 
head had  a  number  of  imported  stallions  at  Carrington,  in  Wells 
county.  The  stallions  were  owned  by  E.  Cooper,  who  was  a 
breeder  and  importer  of  blooded  stallions,  residing  near  Adrian, 
Minn.  Whitehead,  who  was  Cooper's  agent  to  sell  said  stallions, 
solicited  these  defendants,  who  were  farmers  residing  in  the  vicin- 
ity of  Carrington,  to  organize  a  stock  company  with  a  capital  stock 
of  $2,000,  for  the  purpose  of  purchasing  one  of  these  stallions. 
The  contemplated  purchase  was  conditioned  upon  the  organiza- 
tion of  the  company  and  an  examination  of  the  stallion.  The 
defendants  agreed  with  Whitehead  that  they  would  meet  and  try 
to  form  a  stock  company  if  a  sufficient  number  of  farmers  would 
meet  with  them,  and  the  said  Whitehead  thereupon  produced  a 
book,  which  was  so  bound  in  the  middle  that  upon  being  opened 
the  two  pages  appeared  to  be  one  continuous  statement  or  con- 


Porter  et  al.  v.  Hardy  et  al.  551 

tract,  and  said  statement  or  contract  was  so  punctuated  that  it 
would  show  one  continuous  instrument ;  whereas  in  fact  the  leaves 
of  the  book  were  so  perforated  that  they  could  be  detached  down 
in  the  binding,  but  in  such  a  manner  as  not  to  be  easily  percept- 
ible. Said  Whitehead  requested  the  defendants  to  sign  said  state- 
ment or  contract,  stating  and  representing  to  them,  and  each  of 
them,  that  all  he  wanted  was  their  names  to  show  that  they  were 
willing  to  meet  and  form  a  stock  company,  and  that  when  he  got 
names  enough  he  would  notify  them,  and  have  them  meet  for 
that  purpose.  He  also  represented  that  the  memorandum  of 
agreement  was  to  the  effect  that  the  signers  thereof  would  meet, 
and  form  a  stock  company,  and,  if  organized,  they  would  buy  a 
horse,  and  give  three  notes  therefore  to  E.  Cooper,  if,  on  examina- 
tion, they  were  satisfied  with  the  horse;  and  it  was  agreed  that 
they  were  not  to  execute  and  deliver  their  promissory  note  until 
said  organization  was  duly  effected,  and  a  horse  bought.  Relying 
upon  these  representations,  the  defendants  signed  the  printed 
document  contained  in  the  book  referred  to.  In  said  book  com- 
mencing upon  the  upper  page,  and  ending  at  the  bottom  of  the 
lower  page,  were  the  following  words  and  figures,  when  signed 
by  these  defendants,  to  wit : 

Stock  Contract. 

We,  the  undersigned  stockholders,  realizing  the  necessity  of 
improving  our  horses,  do  hereby  associate  ourselves  together  to 

buy  of  E.  Cooper  the  imported stallion 

No said is 

guaranteed  to  be  a  breeder.     Certificate  of  registry  to  accompany 

the  horse.    Capital  Stock, 

$2,000.00.  May  5,  1893. 

For  value  received  we,  or  either  of  us,  promise  to  pay  to 

or  order dollars  on  the  first  day  of ......  .  189.  .,  and 

dollars  on  the  first  day  of 189.  .,  and dollars  on  the 

first  day  of 189.  . .  Bank  of with  interest  at 

per  cent,  per  annum  from  date  until  paid,  payable  annually. 

Here  followed  the  signatures  of  the  defendants. 

That  portion  of  the  contract  above  set  out  down  to  the  words 
"Capital  Stock,"  and  including  the  same,  was  upon  the  upper 
page,  and  the  rest  was  upon  the  lower  page.  Between  the  pages, 
and  close  under  the  bound  portion  of  the  book,  were  perfora- 
tions, by  which  the  lower  page  could  be  detached.  This  book 
was  presented  to  the  defendants  for  their  signatures  while  they 
were  at  work  in  their  fields.     All  of  them  were  able  to  read  and 


jol1  Fraud  Amounting  to  Want  of  Contract 

write,  and  they  all  read  the  paper  hereinbefore  set  out  before  sign- 
ing the  same  and  they  understood  its  general  purpose.  White- 
head, however,  opened  the  book  but  partially,  and  because  of  the 
way  in  which  it  was  bound  it  was  almost  impossible  to  notice  the 
perforations.  Thereafter,  Whitehead,  without  the  knowledge  or 
consent  of  these  defendants,  or  any  of  them,  tore  off  the  lower 
page,  containing  the  signatures  of  these  defendants,  and  filled  in 
the  blanks  so  as  to  form  the  note  sued  upon,  which  note  omitting 
the  signatures,  reads  as  follows: 
$2,000.00  New  Rock  ford,  N.  Dak., 

May  5,  1893. 

For  value  received,  we,  or  either  of  us,  promise  to  pay  to  E. 
Cooper,  or  order,  seven  hundred  dollars  on  the  first  day  of  Octo- 
ber, 1894,  and  seven  hundred  dollars  on  the  first  day  of  October, 
1895,  and  six  hundred  dollars  on  the  first  day  of  October,  189(5,  at 
New  Rockford,  N.  D.,  Bank  of  New  Rockford,  with  interest  at 
eight  per  cent,  per  annum  from  date  until  paid,  payable  annually. 

The  words  and  figures  in  italics  were  filled  in  by  Whitehead. 
The  stock  company  was  not  formed,  and  no  horse  was  purchased 
by  the  defendants.  Whitehead,  however,  after  detaching  the 
lower  page,  and  filling  out  the  blanks,  sent  the  pretended  note  to 
E.  Cooper,  his  principal.  On  or  about  June  1,  1893,  Cooper 
indorsed  the  note  in  suit  to  plaintiff  as  collateral  security  to  a 
debt  which  he  then  owed  it,  and  received  back  from  plaintiff  other 
collateral  security.  The  amount  of  Cooper's  indebtedness  to  the 
plaintiff  was  then  and  is  now  in  excess  of  the  amount  of  the  note 
here  in  suit. 

It  further  appears  from  the  findings  that  no  part  of  the  note 
in  suit  has  been  paid ;  that  plaintiff  parted  with  value  for  said  note 
in  the  due  and  regular  course  of  business,  before  maturity,  and 
in  good  faith,  without  notice  of  any  defects  in  the  execution  of 
said  paper,  or  of  the  fact  that  a  portion  of  it  had  been  filled  out 
after  it  had  been  executed  by  the  defendants  to  said  E.  Cooper, 
or  that  any  paper  or  writing  had  been  attached  to  said  paper,  or 
was  in  the  same  book  with  it,  or  of  any  other  matter  or  thing 
which  would  provoke  inquiry  as  to  the  defense  now  set  up  by  the 
defendants. 

The  question  of  the  defendants'  negligence  in  signing  the 
document,  which  was  afterwards  converted  into  the  note  in  suit, — 
and  that  is  the  only  question  relied  upon  by  appellant, — is  to  be 
determined  upon  the  facts  hereinbefore  set  out.  The  trial  court 
found,  both  as  a  matter  of  fact  and  as  a  conclusion  of  law,  that 
the  defendants  were  not  guilty  of  negligence.     It  appears  from 


Porter  et  al.  v.   Hardy  ki    al. 


553 


the  facts  already  stated  that  the  note  in  suit  is  without  consider- 
ation, and  that  it  has  been  materially  altered,  and  is  not  the  instru- 
ment originally  signed  by  the  defendants.  It  goes  without  saying 
that,  as  between  the  original  parties,  a  recovery  could  not  be  had. 
The  defense  now  interposed  would  necessarily  be  sustained. 
What  is  the  position  of  the  plaintiff,  who  concededly  is  a  pur- 
chaser of  the  note  in  due  course?  Can  the  plaintiff,  merely 
because  it  is  a  good  faith  purchaser  of  the  note  in  suit,  recover  on 
the  same,  notwithstanding  the  fact  of  the  alteration  of  the  instru- 
ment ?  There  can  be  no  doubt  that  under  the  general  rule  relating 
to  the  alteration  of  instruments  a  negative  answer  would  be 
required  to  this  question.  The  alteration  in  this  case  was  material, 
and  made  by  the  agent  of  the  payee,  and  without  the  consent  of 
the  defendants.  It  is  well  settled  that,  even, as  against  an  innocent 
indorsee,  a  negotiable  instrument  so  altered  is  rendered  void.  The 
rule  which  is  sustained  by  both  reason  and  authority  is  well 
stated  by  Judge  Dillon  in  his  article  on  "Alteration  of  Instru- 
ments" in  2  Enc.  Law  &  Proc,  at  page  177,  as  follows:  "Any/ 
change  in  an  instrument  which  causes  it  to  speak  a  different 
language  in  legal  effect  from  that  which  it  originally  spoke— 
which  changes  the  legal  identity  or  character  of  the  instrument, 
either  in  its  terms  or  the  relation  of  the  parties  to  it — is-  a  material 
;!  ;ange,  or  technical  alteration,  and  such  a  change  will  invalidate 
the  instrument  against  all  parties  not  consenting  to  the  change. 
Not  only  will  an  alteration  vitiate  the  instrument  as  between  the 
immediate  parties,  but  also  as  ajrains^  a  bona  fide  holder  or 
Indorsee  without  notice;  and  the  latter  can  acquire  no  right  or 
title  other  than  that  of  the  person  under  whom  he  claims."  See 
cases  cited  by  state  under  note  82 ;  also,  2  Am.  &  Eng.  Enc.  Law 
(2d  Ed.)  p.  193,  and  cases  cited;  also,  the  opinion  of  this  court 
in  Bank  v.  Laughlin,  4  N.  D.  391,  61  N.  W.  Rep.  473.  and  §  3937, 
Rev.  Codes,  1899,  which  is  declatory  of  the  rule  as  above  stated. 
As  was  said  in  Bank  v.  Laughlin,  supra,  "After  such  alteration, 
the  paper  is  no  longer  the  same  paper  as  that  sent  out  by  those 
who  executed  and  delivered  the  original  instrument."  Counsel 
for  plaintiff  frankly  admits  that  under  the  rule  as  above  stated 
the  plaintiff  cannot  recover  in  this  action.  Their  sole  contention 
is  that  upon  the  facts  of  this  case  the  defendants  are  estopped 
from  denying  the  execution  of  the  note  in  the  form  in  which  it 
was  purchased  by  the  plaintiff.  It  is  claimed  that  the  defendants 
were  guilty  of  gross  negligence,  both  in  fact  and  in  law.  in  sign- 
ing the  instrument  which  was  afterwards  converted  into  the  note 
sued  upon.     While  it  is  a  well-settled  rule  that  a  material  and 


554  Fraud  Amounting  to  Want  ok  Contract 

unauthorized  alteration  of  a  negotiable  note  renders  it  void  even 
as  against  an  indorsee  in  due  course,  it  is  equally  well-settled  that 
thereare  exceptions  to  this  rule,  under  which  the  maker  may  be 
prevented  from  relying  upon  the  alteration  for  the  purpose  of 
defeating  a  recovery.  The  most  familiar  exception  as  applied  to 
negotiable  notes,  covers  all  of  these  cases  where  parties  have 
either  signed  skeleton  notes,  or  notes  only  partially  filled  out,_ 
and  the  same  have  thereafter  been  filled  out,  and  transferred  to 
an  innocent  holder.  The  cases  are  exceedingJvjiumfTQ'ls  wherp 
notes  so  altered  have  been  enforced  at  "the  suit  of  innocent 
indorsees  notwithstanding  the  fact  that  they  were  materially  dif- 
ferent from  the  instrument  signed  by  the  maker.  The  doctrine 
upon  which  a  majorit}  of  these  cases  rests  is  thai  the  maker  oi 
the  note,  by  signing  it  while  it  contains  blanks,  and  knowing  that 
it  may  be  given  currency  as  commercial  paper,  impliedly,  assents 
that  the  blanks  may  be  filled  out ;  that  is,  the  law  implies  his  con- 
sent to  the  alteration  from  the  fact  of  his  signing  it  with  blanks 
therein.  In  that  view  the  person  filling  the  blanks  is  held  to  be 
the  agent  of  the  maker.  The  alteration,  in  this  view,  is  made  with 
the  consent  of  the  maker  of  the  note,  and  the  contract  therefore 
is  his  contract.  Other  cases  place  the  liability  of  the  makers  upon 
the  ground  of  estoppel  by  negligence.  The  limitations  upon  this 
implied  power  to  fill  blanks  is  well  stated  by  Judge  Dillon  in  the 
article  before  referred  to.  on  pages  159  and  161,  as  follows:  "It 
may  be  laid  down  generally  that  if  one  signs  an  instrument  con- 
taining  blanks  he  must  be  understood  to  intrust  it  to  the  person^ 
to  whom  it  is  so  delivered  to  be  filled  up  properly,  according  to 
the  agreement  between  the  parties ;  and  when  so  filled  the  instru- 
ment  is  as  good. as  if  originally  executed  in  complete  form ;  and, 
if  one  signs  or  indorses  a  bill  containing  blanks  to  be  filled,  the 
deliver}-  of  such  an  instrument  is  an  authority  to  fill  up  the  blanks 
in  conformity  with  the  original  instrument.  *  *  *  The  implied 
authority  to  fill  blanks  is  confined  to  such  insertions  as  are  neces- 
ry  to  make  the  instrument  perfect  according  to  its  nature, 
frame,  and  intended  use.  There  is  no  inference  of  authority  to 
make  any  additions  to  the  terms  of  the  instrument,  or  to  make  a 
new_ instrument  by  erasing  what  is  written  or  printed,  or  by  filling" 
blanks  with  stipulations  repugnant  to  the  plainly  expressed  inten- 
tion of  the  paper  as  shown  by  its  written  or  printed  terms ;  and 
such  an  addition  or  alteration  wilTavoid  the  instrument,  even  in 
tn"e  hands  of  "an  innocent  "HoTder,  unless  the  person  authorized  to 
fill  the  blanks  may  be  considered  as  a  stranger  with  reference  to 
any  other  changes  which  he  may  make."  See  cases  cited  under 
notes  74,  75.  82,  and  83. 


Porter  et  al.  v.  Hardy  et  al.  555 

We  may  now  inquire  whether,  upon  the  facts  in  this  case,  the 
defendants  are  liable  upon  the  note  in  suit  under  the  doctrine  of 
implied  authority  or  estoppel  by  negligence.  We  are  agreed  that 
they  are  not  liable.  It  certainly  cannot  be  claimed  that  the  plain- 
tiff has  any  right  of  recovery  upon  the  note  sued  upon  which 
depends  upon  the  doctrine  of  implied  authority.  The  instrument 
sued  upon  is  a  negotiable  promissory  note.  The  instrument  signed 
by  the  defendants  was  not  a  negotiable  note  in  form,  with  unfilled 
blanks,  but  on_the  contrary,  was  a  stock  contract,  in  which  the 
signers  agreed  to  associate  themselves  together  to  bin  a  horse. 
Applying  the  doctrine  of  implied  authority  to  the  instrument 
sisned_by  the  defendants,  it  is  apparent  that  it  would  extend  only* 
to  filling  the  blanks  in  the  instrument  according  to  the  purport 
and  effect  of  the  roni-rari-  as  contained  within  its  four  corners. 
Had  all  of  the  blanks  been  filled,  it  would  still  be  a  contract,  non- 
negotiable  and  conditional,  and  the  promises  to  pay  therein  con- 
tained would  be  unenforceable  save  upon  the  condition  of  an 
actual  association  being  formed  and  an  actual  purchase  of  a  stal- 
lion. The  instrument  was  not  so  filled  out,  but,  -on  the  contrary, 
the  contract  was  cut  in  two,  and  an  entirely  different  instrument 
was  created.  As  we  have  seen,  the  doctrine  of  implied  authority 
does  not  extend  to  the  create  >n  of  different  instruments.  We  find 
no  basis  of  fact  in  this  case  to  conclude  that  there  was  any  implied 
authority  in  Cooper  or  his  agent  to  convert  the  contract  signed 
by  the  defendants  into  the  note  here  sued  upon.  Neither  are  we 
able  to  find  that  the  defendants  were  negligentjn  signing  the" 
contract  as  they  did.  The  cases  are  numerous  where  parties  who 
have  unwittingly  signed  negotiable  notes  have  been  held  liable 
to  good-faith  purchasers  because  of  their  negligence  and  careless- 
ness in  not  ascertaining  the  nature  of  the  instrument  signed  by 
them.  That,  however,  is  not  this  case.  In  this  case  the  parties 
signed  the  instrument  knowingly.  But  they  did  not  sign  a  skel- 
eton note,  or  a  note  containing  blanks,  but  an  entirely  different 
instrument.  They  were  able  to  read  the  contract  and  they  read 
it  before  signing  it,  and  understood  its  general  nature.  We  are 
not  able  to  see  wherein  they  were  negligent  in  signing  it.  The 
most  that  can  be  said  is  that  they  were  negligent  in  not  having 
the  blanks  filled  out ;  but,  as  we  have  seen,  they  were  not  bound 
to  assume  that  the  instrument  would  or  could  be  filled  out  in  any 
other  way  than  according  to  its  general  terms  and  purport.  We 
do  not  think  th e  cjDnJxacLsign ed. by_ihe_ ..deign dan ts_pj e serrtejijsuch 
an  appearance  as  to  make  the  mere  fact  of  their  signing  the  paper 
an  act  of  carelessness.    The  loss  resulting  from  the  forgery  must 


556  Holder  Free  from  Equities 

fall  upon  the  purchaser  of  the  forged  paper,  and  not  upon  the 
innocent  makers  of  the  stock  contract.  The  defendants  had  as 
gi  iod  a  right  to  rest  upon  the  presumption  that  the  contract  which 
they  signed  would  not  be  converted  by  forgery  into  a  negotiable 
promissory  note  as  the  plaintiff  had  to  presume  that  the  note 
which  he  purchased  was  not  forged.  Parties  taking  such  paper 
must  be  considered  as  taking  it  at  their  own  risk,  so  far  as  the 
question  of  forgery  is  concerned,  and  as  trusting  to  the  character 
and  credit  of  those  from  whom  they  receive  it  and  of  the  inter- 
mediate holders.  Holmes  v.  Trumper,  22  Mich.  427,  7  Am.  Rep. 
661  ;  Bank  v.  Clark,  (Iowa)  1  N.  W.  Rep.  491,  33  Am.  Rep.  129; 
Bank  v.  Stowcll,  123  Mass.  196,  25  Am.  Rep.  67;  Gerrish  v. 
(, lines,  56  X.  H.  9;  Kellogg  v.  Steiner,  29  Wis.  626;  ScoHeld  v. 
Ford,  56  la.  370,  9  N.  W.  Rep.  309;  Benedict  v.  Cowden,  49  N. 
Y.  396,  10  Am.  Rep.  382 ;  Searlcs  v.  Scipp,  6  S.  D.  472,  61  N.  W. 
Rep.  804.  It  follows  from  what  we  have  said  that  the  trial  court 
correctly  held  that  the  plaintiff  is  not  entitled  to  recover  in  this 
action.  ^L^y-u  <^LaAs 

The  judgment  of  the  district  court  is  affirmed. 
All  concur. 


/s    HOLDER  IN  DUE  COURSE  TAKES  FREE  FROM  EQUITIES.         §  59. 

Wirt  v.  Stubblefield  (1900),  17  A  pp.  Cas.  D.  C.  283. 

Hearing  on  an  appeal  by  the  defendant  from  a  judgment  of 
the  Supreme  Court  of  the  District  of  Columbia  under  the  Seventy- 
third  rule  of  that  court  for  want  of  a  sufficient  affidavit  of  defense 
in  an  action  on  a  promissory  note.    Affirmed. 

The  facts  are  sufficiently  stated  in  the  opinion. 

Mr.  F.  H.  Stephens,  for  the  appellant. 
Mr.  Howard  Boyd,  for  the  appellee. 

Mr.  Chief  Justice  Alvey  delivered  the  opinion  of  the  Court : 
This  is  an  appeal  from  the  Supreme  Court  of  the  District  of 
Columbia,  and  the  question  involved  arises  under  the  Seventy- 
third  rule  of  that  court.  The  action  was  brought  by  the  appellee, 
Thomas  W.  Stubblefield,  as  indorsee  of  a  promissory  note,  dated 
August  12,  1899,  for  $375,  payable  three  months  after  date,  made 
by  the  present  appellant,  John  L.  Wirt,  payable  to  C.  T.  Haven- 
ner  or  order,  and  by  the  latter  indorsed  to  the  appellee,  the  plain- 
tiff in  the  action.  The  action  was  brought  jointly  against  both 
the  maker  and  the  indorser  of  the  note,  as  authorized  by  the  stat- 
ute.   Judgment  was  rendered  against  the  indorser,  but  the  maker, 


Writ  v.  Stubblefield  557 

the  appellant,  resisted  judgment  under  the  rule  of  court,  upon  the 
defense  interposed  by  him,  by  plea  and  affidavit,  "that  the  said 
note  sued  on  was  given  in  payment  of  money  alleged  to  be  due 
on  a  certain  wager  or  gaming  transaction,  to  wit,  a  wager  upon 
the  fluctuations  in  the  price  of  certain  stock  wherein  the  said 
defendant  lost,  and  the  said  note  was  given  to  meet  the  payment 
of  the  said  loss."  The  affidavit  of  the  defendant  was  filed  to  sup- 
port this  plea;  but  the  court  below  ruled  the  affidavit  to  be  insuf- 
ficient, under  the  Seventy-third  rule  of  the  court,  and  thereupon 
entered  judgment  against  the  defendant  under  the  rule,  for  want 
of  sufficient  affidavit  of  a  valid  defense ;  and  the  defendant  has 
appealed. 

This  defense  of  gaming  consideration  for  the  note,  set  up 
by  plea  and  affidavit,  is  made  upon  the  assumption  that  the  old 
British  statutes  against  gaming,  of  16  Car.  2,  Ch.  7,  and  9  Anne, 
Ch.  14,  were  in  force  in  the  state  of  Maryland  at  the  time  of  the 
cession  by  that  State  of  the  District  of  Columbia  to  the  United 
States,  or  at  the  time  of  the  passing  of  the  act  of  Congress  of 
February  27,  1801,  declaring  what  laws  should  be  in  force  in  this 
District,  and  that  they  formed  a  part  of  the  statute  law  of  the 
State  that  was  adopted  and  declared  of  force  in  this  District  by 
the  act  of  Congress.  That  those  British  statutes  against  gaming 
were  in  force  in  the  State  of  Maryland  in  1801,  there  can  be  no 
question  or  doubt  (Alex.  Brit.  Stats.  476,  689)  ;  and  that  they 
were  adopted  and  became  a  part  of  the  law  of  this  District,  is 
equally  free  of  doubt.  Fleming  v.  Foy,  4  Cranch.  Cir.  Ct.  Rep. 
426.  And  those  statutes  are  still  in  force  here,  except  as  they 
may  have  been  repealed  by  force  of  the  act  of  Congress  of  January 
12,  1899,  known  as  the  "Negotiable  Instrument  Law,"  so  far 
as  they  relate  to  or  may  affect  negotiable  instruments,  such  as 
bills  and  notes. 

Gaming  consideration  is  not  mentioned,  nor  is  that  of  usury, 
in  the  recent  act  of  Congress  of  January  12,  1899;  nor  are  any 
of  the  statutes  upon  the  subject  of  gambling  or  usury  referred  to, 
and  therefore,  if  the  old  British  statutes  to  which  we  have 
referred  have  been  partially  repealed  by  the  act  of  Congress,  it  is 
by  implication  and^Tiot  by  express  terms.  The  act  of  Congress 
does  provide,  however,  by  section  190,  "That  all  laws  of  force 
within  the  District  of  Columbia,  inconsistent  with  the  foregoing 
provisions  of  this  act,  be,  and  the  same  hereby  are,  repealed."  It 
must,  therefore,  have  been  supposed,  and  within  the  contempla- 
tion of  Congress,  that  there  were  laws  or  legislation  in  force 
proper  to  be  repealed ;  and  the  question  is,  what  laws  were  thus 
intended  to  be  repealed  ? 


558  Holder  Free  From  Equities 

To  determine,  then,  the  question,  whether  there  is  conflict 
or  inconsistency  between  the  provisions  of  the  act  of  Congress 
and  the  effect  and  operation  of  the  British  statutes  of  16  Car.  *2, 
Ch.  7,  and  9  Anne,  Ch.  14,  we  must  consider  not  only  the  express 
provisions  of  the  act  of  Congress,  but  the  policy  and  object  of  its 
enactment,  as  compared  with  the  effect  and  operation  of  the  stat- 
utes against  gaming.  We  know  the  origin  and  history  of  the  act 
of  Congress.  We  know  it  is  largely  derived,  in  its  form  and  pro- 
visions, from  the  English  act  upon  the  subject ;  and  we  know, 
moreover,  that  the  great  and  leading  object  of  the  act,  not  only 
with  Congress,  but  with  the  large  number  of  the  principal  com- 
mercial States  of  the  Union  that  have  adopted  it,  h^s  been  to  estab- 
lish a  uniform  system  of  law  to  govern  negotiable  instruments 
wherever  they  might  circulate  or  be  negotiated.  It  was  not  only 
uniformity  of  rules  and  principles  that  was  designed,  but  t,o 
embody  in  a  codified  form,  as  fully  as  possible,  all  the  law  upon 
the  subject,  to  avoid  conflict  of  decisions,  and  the  effect  of  mere 
local  laws  and  usages  that  have  heretofore  prevailed.  The  great 
object  sought  to  be  accomplished  by  the  enactment  of  the  statute 
was,  to  free  the  negotiable  instrument,  as  far  as  possible,  from 
all  latent  or  local  infirmities  that  would  otherwise  inhere  in  it, 
to  the  prejudice  and  disappointment  of  innocent  holders,  as 
against  all  of  the  parties  to  the  instrument  professedly  bound 
thereby.  This  clearly  could  not  be  effected  so  long  as  the  instru- 
ment was  rendered_absolutely  null  and  void  by  local  statute,  as 
against  the  original  maker  or  acceptor ;  as  is  the  case  by  the 
operation,  indeed,  by  the  express  provision,  of  the  statutes  of 
Charles  and  Anne.  For  although  the  statutes  declare  that  all  bills 
and  notes  made  upon  gaming  considerations  shall  be  void  to  all 
intents  and  purposes,  yet  it  has  never  been  allowed  as  a  valid 
objection  to  an  action  against  the  drawer  or  indorser  that  the  hill 
or  note  was  accepted  or  made  on  a  gaming  consideration^  This 
construction  of  the  statutes  has  proceeded  upon  the  ground  that 
it  was  necessary  to  further  the  object  of  the  statute ;  for  to  exempt 
the  drawer  or  an  indorser  from  suit  might  assist  a  winner,  whom 
the  statutes  meant  to  punish,  not  to  protect.  Edwards  v.  Dick, 
4  B.  &  Aid.  212.  But  as  against  the  maker  of  a  note  or  the_ 
acceptor  of  a  bill,  the  instrument  was  absolutely  null  and  void._ 
even  in  the  hands  of  an  innocent  holder  for  value,  taking  the 
reaper  in  due  course  before  maturity.  This  was  certainly  an  evil 
that  required  correction ;  and  the  necessity  for  the  correction  is 
founded  upon  a  just  commercial  policy  of  sustaining  the  credit 
and  circulation  of  negotiable  instruments,  and  falls  clearly  within 


Writ  v.  Stubblefield  559 

the  object  and  policy  of  the  act  of  Congress  of  January  12,  1899. 
The  old  English  statutes,  to  which  we  have  referred,  have  been 
repealed  in  England,  by  Stat.  8  and  9  Vict.,  Ch.  109,  and  other 
provisions  substituted  for  them ;  and  we  are  not  aware  that  the 
provisions  of  those  old  statutes,  so  far  as  they  were  made  to  affect 
negotiable  instruments,  constitute  the  existing  law  in  any  State 
of  the  Union ;  though  such  statutes  may  have  been,  and  doubtless 
were,  extensively  adopted  in  the  last  and  the  early  part  of  the 
present  century. 

By  the  ''Negotiable  Instrument  Act"  of  January  12,  1899, 
in  its  55th  section,  it  is  provided  "that  the  title  of  a  person  who 
negotiates  an  instrument  is  defective  within  the  meaning  of  this 
act,  when  he  obtained  the  instrument  or  any  signature  thereto, 
by  fraud,  duress,  or  force  and  fear,  or  other  unlawful  means,  or 
for  an  illegal  consideration,  or  when  he  negotiates  it  in  breach  of 
faith,  or  under  such  circumstances  as  amount  to  a  fraud." 

And  by  section  60  it  is  provided  "that  the  maker  of  a  nego- 
tiable instrument  by  making  it  engages  that  he  will  pay  it  accord- 
ing to  its  tenor,  and  admits  the  existence  of  the  payee  and  his 
then  capacity  to  indorse." 

Consideration  is  illegal  either  at  the  common  law,  or  by 
statute.  When  the  title  to  a  bill  or  note  is  defective  by  reason 
of  an  illegal  consideration  at.thp  common  law^,  the  instrument  is_ 
good  in  the  hands  of  an  innocent  indorsee  ior  value  against  all 
parties.  But  not  so  where  the  consideration  is  made  illegal  bv 
sjgrtuje,  and'tluHnstrument  itself  is  declared  to  be  null  and  void, 
as~7n  cases  of  bills  or  notes  made  upon  gambling  or  usurious 
transactions.    Cromwell  v.  Sac  County,  96  U.  S.  60. 

This  subject,  with  the  distinction  just  stated,  is  expounded 
with  great  force  and  clearness  by  Judge  Story,  in  his  work  on 
Promissory  Notes,  in  sections  191  and  192.  He  says,  "that  a 
bona  fide  holder  for  value,  without  notice,  is  entitled  to  recover 
upon  any  negotiable  instrument,  which  he  has  received  before  it 
has  become  due,  notwithstanding  any  defect  or  infirmity  in  the 
title  of  the  person  from  whom  he  derived  it ;  as,  for  example,  even 
though  such  person  may  have  acquired  it  by  fraud,  or  even  by 
theft,  or  by  robbery.  And  the  same  doctrine  will  generally  apply 
to  all  cases  of  a  bona  fide  holder  for  value,  without  notice  before 
it  becomes  due,  where  the  original  note,  or  the  indorsement  there- 
of, is  founded  on  an  illegal  consideration ;  and  this  upon  the  same 
general  ground  of  public  policy,  without  any  distinction  between 
a  case  of  illegality,  founded  in  moral  crime  or  turpitude,  which  is 
malum  in  se,  and  a  case  founded  in  the  positive  prohibition  of  a 


560  Holder  Free  From  Equities 

statute,  which  is  malum  prohibitum;  for,  in  each  case,  the  innocent 
holder  is,  or  may  be,  otherwise  exposed  to  the  most  ruinous  con- 
nces,  and  the  circulation  of  negotiable  instruments  would  be 
materially  obstructed,  if  not  totally  stopped.    The  only  exception 
is,  where  the  statute,  creating  the  prohibition,  has,  at  the  same 
time,  either  expressly,  or  by  necessary  implication,  made  the  instru- 
ment absolutely  void  in  the  hands  of  ever)  bolder,  whether  be  has 
such  notice,  or  not.    There  are  few  cases,  in  which  any  statute  has 
created  a  positive  nullity  of  such  instruments,  either  in  England 
or  America.    The  most  important  seems  to  be  the  statutes  against 
gaming,  and  the  statutes  against  usury.     And  the  policy  of  these 
enactments  has  been  brought  into  so  much  doubt  in  our  day,  that 
in  England  the  rule,  as  to  usury  and  gaming,  and  some  other  cases, 
has  been  changed  by  recent  statutes;  and  a  total  repeal,  or  partial 
relaxation  of  it,  has  found  its  way  into  the  legislation  of  America." 
It  is  difficult  to  conceive,  if  we  bear  in  mind  the  object  and 
policy  intended  to  be  promoted  by,  as  well  as  the  entire  scope 
and  express  provisions  of,  the  "Negotiable  Instrument  Law,"  that 
the  framers  of  that  act  ever  intended  to  save  and  preserve  unre- 
pealed, as  part  of  the  law  governing  negotiable  instruments,  the 
old  English  statutes  of  16  Car.  2,  and  9  Anne,  against  gaming. 
( )n  the  contrary,  it  was  most  clearly  among  the  objects  and  pur- 
poses of  that  act,  to  get  rid  of  all  such  impediments  and  hindrances 
to  the  circulation  of  negotiable  instruments  as  had  been  created  by 
those  old  statutes,  and  to  embody  the  entire  law  upon  the  subject, 
as  far  as  practicable,  into  one  well  digested  and  consistent  act. 
It  is  true,  as  a  general  rule,  that  where  there  are  two  acts  on  the 
same  subject,  the  rule  is  to  give  effect  to  both,  if  it  can  consistently 
he  done.     "But  if  the  two  are  repugnant  in  any  of  their  provi- 
sions, the  latter  act,  without  any  repealing  clause,  operates  to  the 
extent  of  a  repugnancy  as  a  repeal  of  the  first;  and  even  where 
two  acts  are  not  in  express  terms  repugnant,  yet  if  the  latter  act 
covers  the  whole  subject  of  the  first,  and  embraces  new  provi- 
sions, plainly  showing  that  it  was  intended  as  a  substitute  for 
the  first  act,  it  will  operate  as  a  repeal  of  that  act."     Davics  v. 
Fairbairn,  3  How.  636;   United  States  v.  Tynen,   it   Wall.  88, 
92.     It  is  quite  clear  that  the  act  of  Congress  was  intended  to 
cover  the  whole  subject  of  negotiable  instruments  as  far  as  it 
could  be  done  by  statute ;  and  therefore  to  exclude  the  operation 
and  effect  of  former  statutes  like  those  of  Charles  and   Anne. 
But  there  is  manifest  inconsistency  or  repugnancy,  as  we  have 
shown,  between  the  effect  and  operation   of  those  old   English, 
statutes,  so  far  as  they   affect  negotiable   instrument^_^rul_th£. 
provisions  and  policy  of  the  "Negotiable  Instrument  Law"  of 


Simon  v.  Merritt  561 

Congress ;  and  this  construction  of  the  latter  act  is  strongly  forti- 
fiedlby  the  general  provision  of  that  act  which  declares  that  "In 
any  case  not  provided  for  in  this  act  the  rules  of  the  law  mer- 
chant shall  govern."    We  know  that  no  such  prohibition  or  nullity 
as  that  declared  in  the  old  statutes  against  gaming  has  any  recog- 
nition in  the  law  merchant.     The  law  merchant  is  a  system  of\ 
commercial  law  founded  upon  the  most  liberal  and  enlarged  cus-  1 
toms  and  usages,  for  the  promotion  of  trade,  and  which  is  applied  / 
to  for  the  decision  of  the  causes  of  merchants,  by  such  general    I 
rules  as  obtain   in  all   commercial   countries,   and   is,   therefore,    I 
wholly  inconsistent  with  the  gaming  statutes ;  and  it  applies  often    \ 
even  in  matters  relating  to  domestic  trade,  as,  for  instance,  with     J 
regard  to  the  drawing,  the  acceptance,  and  the  transfer  of  inland  / 
bills  of  exchange,     i  Black.  Com.  173.     And  since  the  statute  3 
and  4  Anne,  Ch.  9,  promissory  notes,  when  indorsed,  are  placed 
upon  the  same  footing  of  inland  bills  of  exchange,  if  they  were 
not  so  before  that  statute. 

We  are  clearly  of  opinion  that  the  British  statutes  of  16  Car. 
2,  Ch.  8,  and  9  Anne,  Ch.  14,  against  gaming,  so  far  as  they 
might  or  would,  if  in  force,  affect  the  validity  of  the  negotiable 
instruments  embraced  by  the  act  of  Congress,  are  inconsistent 
with  the_provisions  of  the  latter  act_and_they  are,  therefore,_to. 
the  extent  that  they  are  so  inconsistent  or  repugnant  to  the  act 
of  Congress,  repealed,  and  no  longer,  as  to  negotiable  instruments, 
in  force  in  this  District. 

The  affidavit  of  the  defendant,  filed  under  the  Seventy-third 
rule  of  the  court,  showing  no  sufficient  defense  to  the  action, 
there  was  no  error  in  entering  the  judgment  for  the  plaintiff 
under    that    rule ;    and    the    judgment    appealed    from    must    be 

affirmed;  and  it  is  so  ordered.  ^L***-   ^L-<KyVN^- 

Judgmcnt  am'ined. 

HOLDER  DERIVING  TITLE  THROUGH    HOLDER   IN   DUE  COURSE  TAKES 
FREE  FROM    EQUITIES.  §  60. 

Simon  v.  Merritt  (1871),  S3  Iowa,  537. 

Appeal  from  Lee  District  Court. 

Action  by  the  holder  of  a  promissory  note  against  the  maker. 
There  was  a  verdict  and  judgment  for  defendant.  Plaintiff 
appeals. 

Jno.  Van  Valkcnburg,  Slagle  &  Acheson,  for  the  appellant. 
F.  Semple,  for  the  appellee. 


561!  Title  from  Holder  in  Due  Course 

Beck,  Ch.J. — The  defendant  filed  an  equitable  answer  set- 
ting up  fraud  practiced  by  the  payee  of  the  note  upon  defendant 
in  order  to  procure  its  execution,  and  alleging  a  conspiracy  on 
the  part  of  the  transferree  of  the  note,  the  payee  and  others  to 
cheat  and  defraud  citizens  generally,  and  that  defendant,  by  the 
fraud  practiced  upon  him,  was  induced  to  sign  the  note.  The 
answer  avers  that  plaintiff  had  notice  of  the  fraud  in  procuring 
the  note,  and  that  it  was  given  without  consideration.  It  is  also 
alleged  that  plaintiff's  transferrer  had  notice  of  the  fraud.  The 
answer  is  in  the  nature  of  a  cross-bill,  and  the  payee,  Hunter,  a 
former  transferee,  Leggett,  with  others,  are  made  defendants. 
These  parties,  or  at  least  plaintiff,  Simon,  and  his  immediate 
transferrer,  Leggett,  answered  the  cross-bill,  denying  the  matters 
therein  alleged.  Upon  the  issues  thus  formed,  no  objection 
having  been  made  to  the  manner  of  their  presentation  and  trial, 
the  cause  was  submitted  to  a  jury,  and  evidence  in  support  and 
denial  of  the  allegations  of  the  pleadings  was  introduced.  Among 
other  instructions  the  court  gave  the  jury  the  following:  "If  you 
find  from  the  evidence  that  the  note  in  question  was  obtained  of 
the  makers  by  fraud  and  deception,  and  if  you  further  find  that 
the  plaintiff,  Simon,  knew  of  such  fraud  and  deception,  or  if  he 
had  reason  to  know  or  believe  that  said  note  was  fraudulently 
obtained  of  the  maker,  and  that  it  is  void,  and  if,  because  of  such 
knowledge  or  belief,  he  refused  to  receive  or  purchase  it  of  Leg- 
gett until  an  indemnifying  bond  was  executed  to  him  by  Leggett. 
then  the  law  of  the  case  is  with  the  defendant,  and  if  you  so  find 
then  your  verdict  should  be  for  defendant."  And  the  instruction 
directed  the  jury  that  if  plaintiff,  "in  good  faith,  for  a  valuable 
consideration,  obtained  the  note  in  the  ordinary  course  of  busi- 
ness, before  maturity,  without  notice  of  fraud,  or  without  having 
reason  to  know  or  believe  that  the  note  was  obtained  by  fraud  of 
the  maker,"  they  should  find  for  plaintiff. 

These  instructions  are  erroneous.  They  leave  out  of  view 
the  well-settled  doctrine  that  if  Leggett,  the  transferrer  of  plain: 
tiff,  was  such  an  innocent  and  bona  fide  holder  of_the_p_aper.  that 
in  his  hands  it  could  have  been  enforced  against  defendant,  plain- 
tiff, although  he  may  have  taken  the  note  chargedTwith  notice  of 
its  infirmities,  may  recover  in  this  action.  If  Leggett  so  held  the 
note,  his  title  and  rights  thereto  were  such  that  they  could  not 
have  been  defeated  by  defendant.  In  the  transfer,  the  title  and 
rights  held  by  him  passed  to  plaintiff.  The  notice  whjcji  plaintiff. 
may  have  had  of  the  fraud  in  the  original  transactignjloes  not 
defeat  the  rights  he  acquired  by  the  transten 

~~One  reason  of  the  rule  is  obvious.     The  maker  of  the  note 


Jennings  v.  Carlucci  et  al.  563 

would  be  liable  to  the  transferrer;  his  condition  is  made  no  harder 
by  the  note  coming  into  the  hands  of  one  having  notice  of  its 
infirmities.  We  do  not  understand  that  there  is  any  conflict  in 
the  authorities  upon  this  point.  Hoskell  &  Geruey  v.  Whitmorc, 
19  Me.  102 ;  Smith  v.  Hiscock,  14  id.  449;  Prentice  &  Messenger 
v.  Zone,  2  Gratt.  262;  Boyd  v.  McCann,  10  Md.  118;  Howell  v. 
Crane,  12  La.  An.  126.  See  authorities  cited  in  Story  on  Prom. 
Notes,  §  191. 

The  instructions  above  set  out,  being  in  conflict  with  this 
doctrine,  ought  not  to  have  been  given.  For  this  reason  the 
judgment  of  the  district  court  is  ^       Reversed. 

Jennings  v.  Carlucci  et  al.  (1904) ,  8/  N.  Y.  Supp.  4J5. 

Appeal  from  City  Court  of  New  York,  Trial  Term,  w 
Action  by  Clarkson  Jennings  against  Frederick  Carlucci  and 
another.     From  a  judgment  for  plaintiff  and  an  order  denying  a 
motion  for  new  trial,  defendants  appeal.     Affirmed. 

Argued  before  Freedman,  P.  J.,  and  Scott  and  Blanch- 
ard,  J  J. 

Menken  Bros.,  for  appellants. 
Otto  Drocgc,  for  respondent. 

Blanchard,  J.  This  action  was  brought  to  recover  the 
amount  due  on  a  promissory  note  made  by  the  defendant  Gag- 
iano  to  one  Bell,  and  indorsed  by  the  defendant  Carlucci  and  as 
so  indorsed  delivered  to  said  Bell.  The  note  was  thereafter 
indorsed  by  Bell,  without  recourse,  to  A.  Lambertti,  who  indorsed 
it  to  P.  J.  Lambertti,  who  indorsed  it  to  Di  Lorenzo.  The  evi- 
dence established  the  facts  that  Di  Lorenzo  was  a  bona  fide  holder 
of  the  said  note ;  that  he  acquired  it  in  due  course,  and  for  value, 
before  maturity ;  that  he  transferred  it  for  value,  after  maturity, 
to  the  plaintiff.  The  defendants,  by  their  answers,  interposed 
certain  defenses  which  might  have  been  available  as  between  the 
original  parties  to  the  note.  But  Di  Lorenzo,  being  a  bona  fide 
holder  of  the  said  note  in  due  course,  and  for  value,  took  the  note 
without  any  infirmity  attaching  thereto,  and  his  title  to  it  appears 
to  have  been  perfect.  The  same  title  passed  to  the  plaintiff  upon 
the  transfer  of  the  note  to  him  by  Di  Lorenzo  for  value.  Neg. 
Inst.  Law,  §  97  (Laws  1897,  p.  732,  c.  612)  ;  JTeems  v.  Shaugh- 
nessy,  70  Hun,  175,  24  N.  Y.  Supp.  271.  The  exceptions  of  the 
defendants  are  without  merit. 

The  judgment  and  order  appealed  from  should  be 

All  concur.  affirmed,  with  costs.       V^-^     A^^vn.. 


504  Title  from   Holder  in  Due  Course 

PAYEE  DERIVING  TITLE  THROUGH  HOLDER  IN  DUE  COURSE  DOES  NOT 
TAKK  FREE  FROM   EQUITIES.  §  60. 

Kost  v.  Bender  {1872),  23  Mich.  515. 

Error  to  Lenawee  Circuit. 

A.  L.  Millard,  for  plaintiff  in  error. 

Howell  &  Watts,  and  C.  A.  Stacy,  for  defendant  in  error. 

Cooley,  J. — The  declaration  in  this  case  is  upon  a  promissory 
note  which  was  given  to  the  plaintiff  by  the  defendant  as  part 
payment  on  a  purchase  of  lands  supposed  to  be  valuable  for  the 
production  of  mineral  oil.  The  defense  is.  that  the  defendant 
was  defrauded  in  the  sale,  and  has  sustained  damages  in  conse- 
quence, which  he  is  entitled  recoup. 

The  note  is  negotiable,  and  was  transferred  by  the  plaintiff, 
before  it  fell  due,  to  a  party,  who,  he  claims,  was  a  bona  tide  pur- 
chaser, without  notice  of  any  infirmity,  and  who  afterwards,  for  a 
new  consideration,  sold  it  back  to  him.  And  the  plaintiff  further 
claims,  that  the  note,  having  once  passed  to  a  bona  tide  holder  in 
whose  hands  it  was  subject  to  no  defense,  of  fraud  in  inception, 
or  defect  in  consideration,  is  forever  thereafter  discharged  of  such 
defense,  into  whose  hands  soever  it  may  afterwards  come. 

It  is  perfectly  true  as  a  general  rule,  that  the  bona  fide  holder 
of  negotiable  paper  has 'a  right  to  sell  the  same,  with  all  the  rights 
and  equities  attachin^tojtjn  his  own  hands,  to  whoever  mav  see- 
fit  to  buy  of  him,  whether  such  purchaser  was  aware  of  the  orig- 
inal infirmity  or  not.  Without  this  right  he  would  not  have  the 
full  protection  which  the  law  merchant  designs  to  afford  him. 
and  negotiable  paper  would  cease  to  be  a  safe  and  reliable  medium 
for  the  exchanges  of  commerce.  For,  if  one  can  stop  the  negotia- 
bility of  paper  against  which  there  is  no  defense,  by  giving  notice 
that  a  defense  once  existed  while  it  was  held  by  another,  it  is 
obvious  that  an  important  element  in  its  value  is  at  once  taken 
away. 

But  I  arnnot  aware  that  this  rule  has  ey£r_been_applied  to  a 
purchase  by  the  original  payee,  nor  can  n5erceTvelhat  it  is  essen- 
ti.il  tolhe  protectiori_of  the  innocent-indorsee  -that  it  should  bq. 
It  cannot  be  very^^^ortantJoViinir  that  there  is  one  person 
Incapable  of  succeeding  to  his  equities,  and  who  consequently 
wouhTnot  be  likely  to  become  a  purchaser.  Tf  he  may  sell  to  all 
the  rest  of  the  community,  the  market  value  of  his  security  is  not 
likely  to  be  affected  by  the  circumstance,  that  a  single  individual 


m 


Kosr  v.  Bender  565 

cannot  compete  for  its  purchase,  especially  when  we  consider  that 
the  nature  of  negotiable  securities  is  such  that  their  market  value 
is  very  little  influenced  by  competition.  Nor  do  I  perceive  that 
anyrule^of  principle  of  law  would  be  violated  by  permitting  the 
aker'to  set  up  this  defense  against  the  payee,  when  he  becomes 
indorsee,  with  the  same  effect  as  he  might  have  done  before  it 
had  been  sold  at  all,  or  that  there  is  any  valid  reason  ap^inst  it. 

The  ground  of  defense  is,  the  claim  for  damages  which  the 
maker  has,  by  reason  of  the  fraud  alleged  to  have  been  practiced 
upon  him.  It  is  not  pretended  that  this  claim  is  extinguished  by 
the  sale  of  the  note,  but  only  that  it  is  thereby  separated  from 
the  note  and  incapable  of  again  becoming  annexed  to  it.  After  the 
payee  had  sold  the  note,  he  might  have  been  sued  upon  this  claim, 
and  when  he  again  becomes  the  holder,  he  is  indisputably  liable 
in  some  form.  The  question,  then,  seems  to  be,  whether  the 
maker  shall  be  compelled  to  submit  to  judgment  on  his  note,  and 
then  resort  to  a  separate  action  far  damages,  or  whether  all  dis- 
putes growing  out  of  the  one  transaction  shall  be  submitted  to 
one  jury. 

In  general,  the  policy  of  the  law  is  to  avoid  circuity  of  action, 
wherever  it  can  be  done  without  confusion  ;  and  cases  of  a  counter 
claim  like  this,  are  always  held  to  be  proper  cases  for  the  applica- 
tion of  this  rule  of  policy.  And  if  we  do  not  apply  it  in  this  case, 
it  must  be  because  of  a  purely  technical  reason,  and  not  because 
the  interests  of  justice  would  be  prejudiced. 

The  technical  reason  is,  that  by  the  sale  of  the  note  to  a  bona 
Ude  holder  the  claim  for  damages  has  been  severed  from  it,  and 
the  payee  when  he  again  becomes  holder,  will  sue  upon  it  in  his 
character  of  indorsee,  and  cannot  have  his  demand  reduced  by  a 
claim  which  could  only  be  offset  because  of  its  being  an  incident 
to  the  debt,  and  which  ceased  to  be  an  incident  when  the  first 
transfer  took  place.  But  there  are  many  cases  in  wJTkjiJdieJaWt 
to  avoid  circuity  of  action,  disregards  such  intermediate  transac- 
tions, and  remits  the  parties  to  their  original  rights  and  equities, 
with  a  view  to  the  most  speedy  and  effectual  remedy.  When  this 
defense  was  severed  from  the  note  by  the  first  transfer,  it  was  done 
by  means  of  the  plaintiff's  own  wrong.  Jj_  the  defendant  had  a 
legal  and  just  defense  to  the  note,  either  in  whole  or  in  part,  aris- 
ing  from  the  conduct  of  the  plaintiff,  it  was  the  duty  of  the  latter 
to  recognize  and  allow  _it,  and  he  had  no  moral  right  to  cut  it  off, 
or  attempt  so  to  do,  by  anv  transfer.  But.  having  done  so,  and 
afterwards  acquired  the  note  a  second  time1_^_law^_jye  think, 
\yiHjiot  permit  him  to  take  advantage  of  this  wrong,  but  will 


506      Holdi  k   Presumed  to  be  Holder  in  Due  Course 

remit  the  defendant  to  his  original  rights.  Such,  we  think,  should 
be  the  rule ;  because  it  avoids  circuity  of  action,  expense  to  the 
parties,  and  inconvenience  to  the  courts,  without,  at  the  same  time, 
endangering  any  substantial  rights.  We  had  occasion  to  recog- 
nize an  application  of  the  same  principle,  in  Dubois  v.  Campau, 
24  Mich.,  360,  in  which  a  party,  whose  duty  it  had  been  to  pay 
certain  taxes,  sought  afterwards  to  claim  the  benefit  of  a  tax-title 
which  was  based  upon  his  default  to  pay  them,  and  which  a  third 
party  had  bought  in,  and  then  sold  to  him.  It  was  held  in  that 
case  that  he  had  no  more  right  to  claim  the  benefit  of  the  title  he 
had  thus  bought  in,  than  he  would  have  had  if  he  were  the  original 
purchaser  at  the  tax  sale ;  and  we  think  the  same  rule  is  applicable 
here,  and  rests  upon  reasons  equally  strong. 
For  the  errors  pointed  out : 

The  judgment  must  be  reversed,  with  costs,  and  a  new 

trial  ordered.  -Pjfvi_     &Ji& 

The  other  justices  concurred.  \j 


HOLDER  PRESUMED  TO  HE  HOLDER  IN  DUE  COURSE.  §  6l. 

Paton  v.  Coit  ct  al.  (1858),  5  Mich.  305. 

Error  to  Wayne  Circuit. 

The  action  was  assumpsit  by  defendants  in  error  against 
plaintiff  in  error,  upon  the  acceptance  by  the  latter  of  a  draft 
drawn  upon  him  by  Hildebrand  &  Co.,  of  Cleveland,  Ohio,  dated 
March  30th,  1857,  payable  to  the  order  of  C.  &  A.  Ives,  and  by 
them  indorsed. 

The  defendant  pleaded  the  general  issue. 

On  the  trial  the  acceptance  having  been  given  in  evidence, 
the  plaintiff  rested. 

The  defendant  then  introduced  a  witness,  and  being  required 
to  state  what  he  expected  to  prove  by  such  witness,  stated  that 
he  expected  to  prove  that  such  acceptance  was  given  in  payment 
and  as  security  for  ten  barrels  of  intoxicating  liquor,  called 
whisky,  purchased  by  defendant  on  the  30th  day  of  March,  1857, 
in  Detroit,  of  the  drawers  of  said  draft. 

The  plaintiffs  objected  to  such  evidence,  upon  the  ground 
that  under  the  exceptions  in  section  two  of  the  prohibitory  liquor 
law  of  1855, tne  presumption  was  that  said  draft  was  in  the  hands 
of  bona  fide  holders,  to  wit,  the  plaintiffs;  and  that  the  onus  was 
on  the  defendant  to  show,  or  propose  to  show,  notice  before  said 


Paton  v.  Coit  et  al.  567 

testimony  could  be  received.  The  court  sustained  the  objection, 
and  refused  to  allow  the  testimony  to  be  given;  and  defendant 
excepted. 

Judgment  having  been  rendered  for  plaintiffs  below,  for  the 
amount  of  the  acceptance,  the  defendant  brought  the  case  to  this 
court  by  writ  of  error. 

Howard,  Bishop  &  Holbrook,  for  plaintiff  in  error. 
Walkers  &  Russell,  for  defendants  in  error. 

Christiancy,  J. — Whether  the  evidence  in  this  case  was 
properly  rejected,  does  not  depend  upon  the  question,  Whether, 
standing  alone,  it  would  have  constituted  a  complete  defense 
against  the  draft  in  the  hands  of  a  bona  fide  holder  for  value  ;  but, 
Whether  it  would  have  been  sufficient  to  throw  upon  the  plaintiff 
the  burden  of  proving  himself  to  be  such  bona  fide  holder;  or, 
Whether,  in  fact,  the  evidence  tended,  prima  facie,  to  establish  a 
defense. 

It  is  assumed  by  the  counsel  for  the  defendants  in  error 
(plaintiffs  below),  that  the  only  effect  of  the  statute  in  reference 
to  negotiable  paper  given  for  liquors  sold,  "is  to  render  such 
paper  without  consideration  as  between  the  immediate  parties," 
and  that  "the  effect  of  the  exception  in  section  two  is  simply  to 
put  this  statute  equity  on  a  footing  with  all  other  equities"  between 
the  original  parties  to  negotiable  paper. 

If  this  be  the  only  effect  of  the  statute,  then,  according  to  the 
prevailing  current  of  recent  decisions,  the  evidence  was  properly 
rejected,  though  the  cases  upon  this  point  are  by  no  means  uni- 
form ;  and  we  do  not  wish  to  be  understood  as  giving  any  opinion 
upon  the  question  presented  by  this  hypothesis,  as  we  do  not  think 
it  involved  in  the  present  case. 

The  defense  here  proposed  was  not  merely  the  want,  but  the 
illegality  of  consideration;  and  this,  being  allowed  as  a  defense 
between  the  original  parties,  irrespective  of,  and  even  contrary  to 
the  equities  of  the  parties,  can  not,  without  perversion  of  lan- 
guage, be  called  an  equity.  It  is  not  on  the  defendants'  account 
that  such  a  defense  is  allowed,  as  will  more  fully  appear  in  the 
sequel. 

The  effect  of  the  statute  in  question  is  not  merely  to  render 
such  paper  with  consideration,  but  absolutely  void  and  illegal. 
between  the  immediate  parties,  and  all  others  who  have  not 
obtained  it  for  value,  and  without  notice — not  only  void  in  the 
negative  sense  of  having  no  legal  basis,  but  affirmatively  illegal 
as  violating  the  positive  provisions  of  the  statute.    It  was  not  even 


568       Holder  Presumed  to  be  Holder  in  Due  Course 

contended  that  the  facts  offered  to  be  shown  by  the  defendant 
would  not  have  made  a  prima  facie  case  of  an  illegal  sale,  without 
showing  that  the  sale  did  not  come  within  any  of  the  exceptions' 
of  the  statute ;  and  if  the  plaintiffs  claimed  to  maintain  the  validity 
of  the  sale  under  any  such  exception,  the  burden  of  proof  (this 
being  a  civil  case)  rested  upon  them  to  bring  it  within  the  excep- 
tion^ ' 

Now,  upon  principle,  as  a  question  of  statute  construction, 
and  without  reference  to  any  authority,  when  the  statute  expressly 
declares  all  such  paper  void  and  illegal,  and  forbids  any  action  to 
be  brought  or  maintained  upon  it  "except  when  brought  bv  a  bona 
fide  holder  who  has  received  the  same  upon  a  valuable  and  fair 
consideration  without  notice  or  knowledge,"  etc.,  it  would  seem. 
_to_fol]o^v_  as  a  logical  necessity,  that  when  the  paper  is  shown  to 
have  been  given  for  such  illegal  consideration,  the  plaintiff's  right 
of  recovery  is  cut  off  by  the  general  prohibition  of  the  statute. 
unless,  in  avoidance  of  thisJ_h£_gjyes  evidence  of  those  facts  which 
alone  can  bring  him  within  the  exception. 

We  do  not  propose  to  give  a  definite  opinion  upon  the  point, 
whether,  the  illegality  being  first  shown,  the  burden  of  proof  in 
this  case  would  have  rested  upon  the  plaintiffs  to  show  actual  want  J 
of  notice;  this  might  be  requiring  actual  proof  of  a  negative.  But 
we  are  inclined  to  the  opinion  that  they  should  have  shown  the 
nature  of  the  transaction  accompanying  tn~e  transfer;  and  if  that 
disclosed  no  suspicion  of  such  notice,  it  might  make  a  prima  facie 
case  of  want  of  notice,  and  throw  upon  the  defendant  the  burden 
ofjM'oving  notice.  But  the  amount  of  the  consideration  given  by 
the  plaintiff  is  distinct  from  the  question  of  notice,  and  the  absence 
of  such  consideration,  in  such  a  case,  would  be  a  defense,  though 
the  paper  had  been  taken  by  the  plaintiff  without  notice.  The 
amount  of  consideration  given  by  the  plaintiff  is  an  affirmative^ 
fact  perculiarly  within  his  own  knowledge,  and  not  generally  in 
that  of  the  defendant,  and  being  necessary  to  bring  the  plaintiff's 
case  within  the  exception  of  the  statute,  should  be  proved  by  him. 
To  allow  him  to  recover  without  such  proof,  would  be  an  evasion 
of  the  statute.  Such  proof  (the  illegality  being  first  shown)  is  a 
necessary  part  of  the  plaintiff's  case,  without  which  he  shows  no 
prima  facie  right  to  recover ;  and  though,  in  ordinary  cases,  this 
fact  would  be  presumed  in  favor  of  theTTolder,  this  presumption 
can  never  be  allowed  without  proof,  when  the  paper  was  abso- 
Jutelv  void  between  the  original  parties,  on  the  ground  of  fraud./ 
illegality,  or  duress. 

This  construction  of  the  statute  is  sustained  by  authority.    In 


Paton  v.  Coit  et  al.  569 

England,  by  the  statute  of  Anne,  a  note  or  bill  given  or  indorsed 
upon  a  usurious  consideration,  was  void,  even  in  the  hands  of  a 
bona  fide  holder  for  value  (Chit,  on  Bills,  9  Am.  Ed.,  no)  ;  but 
the  statute,  58  Geo.  III.,  Chap.  93,  made  such  note  valid  in  the 
hands  of  a  bona  fide  holder  for  value  without  notice.  In  the  case 
of  Wyat  v.  Campbell,  1  M.  &  M.,  80,  where  the  note  had  been 
indorsed  by  a  previous  indorser  upon  a  usurious  consideration, 
and  no  notice  given  to  plaintiff  to  prove  consideration,  it  was  con- 
tended that  the  plaintiff  was  not  bound  to  prove  it.  But,  by  Lord 
Tenterden,  Ch  J. — "the  statute,  58  Geo.  III.,  Chap.  93,  makes  a 
note  tainted  with  usury  valid  in  the  hands  of  a  bona  fide  holder; 
the  onus  is  therefore  upon  thejiolder^ to  prove  he  is  such;  other-^  j 
wise__the_^tatute  does  not  apply,  and  the  note  is^  void  under  the 
statute  of  Anne." 

In  that  case,  it  is  true,  the  exception  was  in  a  subsequent  stat- 
ute ;  here  it  is  in  the  same  statute ;  but  we  are  unable  to  perceive 
how  this  can  make  any  difference  as  to  the  burden  of  proof.  If 
the  fact  was  not  to  be  presumed  in  that  case,  it  can  not  be  in 
this. 

But  whether  this  conclusion  be  right  or  wrong,  as  depending 
purely  upon  a  question  of  statute  construction,  can  make  little 
difference  in  this  case.    The  rule  as  to  the  burden  of  proof  is  the 
same  upon  principle  and  authority  to  common  law.    Whenever  \\\€\ 
consideration  of  the  paper  between  the  original  parties  has  been  ( 
illegal,  especially  if  in  violation  of  a  positive  prohibition  of  statute,  7 
proof  of  such  illegality  throws  upon  the  holder  the  burden  of  I 
proving  that  he  got  it  bona  fide,  and  gave  value  for  it :  Northam  v.    I 
Latouche,  4  C.  &  P.,  140;  Bailey  v.  Bidwell,  13  M.  &  W.,  73 ;  J 
Harvey  v.  Toivers,  6  Exch.,  656;  Smith  v.  Brain,  20  Q.  B.,  201 ; 
Fitch  v.  Jones,  32  Eng.  L.  &  Eq.,  134 ;  Vallett  v.  Parker,  6  Wend., 
615;  Edw.  on  Bills,  686,  687;  Chit,  on  Bills,  nth  Am.  Ed.,  661, 
662 ;  Story  on  Bills,  §  193. 

The  case  of  Bailey  v.  Bidzvcll  is  directly  in  point ;  and  Parke 
B.  gives  a  very  satisfactory  reason  why  the  fact  in  question  is  not 
to  be  presumed  by  the  plaintiff.  "If,"  he  says,  "the  note  were 
proved  to  have  been  obtained  by  fraud,  or  affected  by  illegality, 
that  afforded  a  presumption  that  the  person  who  had  been  guilty 
of  the  illegality  would  dispose  of  it,  and  would  place  it  in  the 
hands  of  another  person  to  sue  upon  it."  The  subsequent  case  of 
Fitch  v.  Jones,  above  cited,  shows  that  in  such  case  the  original 
payee  is  still  presumed  to  be  the  owner,  and  that  the  plaintiff  sues 
fo?  his  benefit ;  and  it  is  to  overcome  this  presumption  that  the 
plaintiff  is  required  to  prove  himself  a  bona  fide  holder  for  value. 


570       Holder  Presumed  to  be  Holder  in  Due  Course 

The  rule  is  the  same  as  to  the  burden  of  proof,  where  it  is_ 
shi  >wn  that  the  paper  was  obtained  bv  fraud  or  duress,  and  when 
stolen,  or  put  in  circulation  by  fraud.  See  authorities  above  cited, 
and  Millis  v.  Barber,  i  M.  &  W.,  425  ;  Holme  v.  Karsper,  5  Binn., 
469;  Aldrich  v.  Warren,  i(>  Maine,  465  ;  N.  Y.  &  Va.  State  Stock 
Bank  v.  Gibson,  5  Duer,  574.  In  fact,  many  of  the  cases,  and  most 
of  the  elementary  works,  place  illegality  in  the  same  category 
with  fraud  or  duress,  as  casting  the  burden  of  proof  upon  the 
holder. 

But  while  the  result  is  the  same,  it  is  manifest  that  the  basis 
of  the  rule  in  the  case  of  illegality,  though  equally  solid,  is  quite 
different.  In  the  case  of  duress  and  fraud,  as  well  as  where  the 
paper  has  been  stolen,  the  equities  of  the  defendant  constitute  the 
basis  of  the  rule.  But  in  the  case  of  illegality  of  consideration, 
both  parties  are  generally  equally  in  fault ;  and  it  is  not  to  protect 
the  equities  of  the  defendant,  but  on  broad  grounds  of  public  pol- 
icy— to  uphold  the  law,  and  to  discourage  its  violation  or  evasion 
— that  the  burden  of  proof  is  cast  upon  the  plaintiff.  It  is  as 
much  the  duty  of  courts  to  discourage  the  violation  or  evasion  of 
law  as  to  protect  the  equities  of  parties.  And  it  is  upon  this  prin- 
ciple only  that  the  naked  defense  of  illegality  is  allowed.  See 
opinion  of  Lord  Mansfield  in  Holman  v.  Johnson,  Cowp..  343. 
And  upon  this  principle,  courts  should  be  careful  to  avoid  doing 
anything  to  facilitate  the  enforcement  of  such  contracts,  unless 
it  appear  affirmatively  that  the  plaintiff  is  not  in  fault,  and  that 
he  has  real  equities  to  be  protected. 

The  evidence  was  improperly  rejected. 

The  judgment  must  be  reversed,  and  a  new  trial  granted. 

All  the  Justices  concurred. 


TITLE  IV. 

Discharge  of  Negotiable  Instruments, 
discharge  of  party  primarily  liable.  §  121. 

Page  Woven  Wire  Fence  Co.  v.  Poole  {1901),  129  Mich  57. 

Error  to  Montcalm :  Davis,  J. 

Assumpsit  by  the  Page  Woven  Wire  Fence  Company  against 
Phoebe  M.  Pool  on  a  promissory  note.  From  a  judgment  for 
defendant  on  verdict  directed  by  the  court,  plaintiff  brings  error. 
Reversed. 

Plaintiff  brought  an  action  of  assumpsit.  The  declaration 
was  upon  the  common  counts,  with  notice  attached  that  plaintiff 
would  "give  in  evidence  a  certain  promissory  note,  copy  of  which 
is  given  below."    The  note  and  indorsement  read  as  follows : 

"$200. 

"Grand  Rapids,  State  of  Michigan,  Sept.  28,  1899. 

"Ninety  days  after  date,  I,  of  Lakeview  postoffice,  residing 
in  the  town  of  Cato,  county  of  Montcalm,  State  of  Michigan,  for 
value  received,  promise  to  pay  to  the  order  of  the  Page  Woven 
Wire  Fence  Co.,  or  bearer,  without  default,  two  hundred  dollars, 
payable  at  Lakeview  Bank,  with  exchange  and  collection  charges. 
Interest  at  seven  per  cent,  per  annum  until  paid. 

"Residence  4l/2  miles  S.  E.  Lakeview  of  postoffice. 

"Phcebe  M.  Pool." 

Indorsed  as  follows  :  ^ 

"E.  E.  Metcalf. 

[Two  two-cent  revenue  stamps  canceled.] 

"Pay  to  the  order  of  any  bank  for  collection  and  remittance 
to  Page  Woven  Wire  Fence  Co.,  Adrian,  Mich." 

Under  plea  of  the  general  issue,  defendant  gave  notice  that 
she  would  give  in  evidence — 

"That  from  and  after  the  27th  day  of  December,  A.  D.  1899. 
said  plaintiff  did  not  hold  any  promissory  note  signed  and  exe- 
cuted by  defendant,  and  that  on  the  1st  day  of  January,  A.  D. 
1900,  said  plaintiff  did  not  hold  any  such  note,  and  that  said 
plaintiff  did  not  at  the  date  of  the  commencement  of  this  action, 


572  Discharge  of  Party  Primarily  Liable 

and  docs  not  at  this  date,  hold  an)  promissory  note  signed  and 
executed  by  this  defendant,  and  that  defendant  does  not  owe  said 
plaintiff,  on  any  note  or  otherwise,  any  sum  of  money  whatever; 
that  defendant  has  no  knowledge  of  the  promissory  note  copy 
of  which  is  given  in  plaintiff's  declaration,  but  defendant  admits 
the  execution  of  a  promissory  note  identical  in  form  to  the  copy 
set  forth  in  said  declaration,  which  said  promissory  note  so  given 
b)  defendant  as  aforesaid  has  been  fully  paid,  and  is  now,  and 
since  the  27th  day  of  December,  A.  D.  1899,  at  which  time  this 
defendant  paid  the  same  in  full,  has  been,  in  defendant's  posses- 
sion, as  receipt  and  evidence  of  the  payment  thereof ;  and  that,  if 
plaintiff  now  holds  any  note  against  defendant,  it  is  only  a  copy 
or  forgery,  as  the  note  paid  by  defendant,  and  now  in  her  posses- 
sion, is  the  identical  note  executed  to  plaintiff,  and  the  only  note 
executed  and  delivered  by  defendant  to  plaintiff." 

To  this  was  attached  her  affidavit  setting  forth  the  same 
facts. 

In  opening  the  case  to  the  jury,  counsel  for  plaintiff  stated 
that,  before  the  note  became  due,  plaintiff  forwarded  it  to  a  bank 
at  Lakeview  for  collection,  as  its  agent  supposed;  that  in  that 
letter  the  name  of  defendant  was  given  as  Philo  M.  Pool ;  that 
on  the  same  day  it  wrote  a  letter  to  Philo  M.  Pool,  stating  that 
the  note  was  sent  to  the  bank  for  collection;  that  afterwards,  dis- 
covering its  mistake  in  the  name,  it  wrote  to  the  bank  and  defend- 
ant, correcting  the  mistake,  and  informing  her  that  her  note  was 
in  the  bank  for  collection ;  that  she  called  at  the  bank  to  see  about 
the  matter ;  that  when  it  became  due  she  did  not  call  at  the  bank, 
and  has  never  paid  it ;  that  the  first  time  plaintiff's  agent  or  attor- 
neys saw  the  note  afterwards  it  was  in  defendant's  hands ;  that 
she  has  it  now ;  that  plaintiff  never  authorized  any  one  to  collect 
the  note  except  the  bank ;  and  that  plaintiff  did  not  know  how  it 
came  into  her  possession.  Plaintiff  had  given  defendant  notice 
to  produce  the  note.  After  the  opening  to  the  jury,  plaintiff's 
counsel  asked  defendant's  counsel  to  produce  it.  Her  counsel 
admitted  that  they  had  the  note  in  court,  but  declined  to  produce 
it  except  upon  the  order  of  the  court.  The  reason  given  by  coun- 
sel was  that  plaintiff  had  given  notice  that  it  would  give  in  evi- 
dence the  note  declared  upon,  that  it  had  no  such  note  in  its 
possession,  and  that  it  had  not  sued  upon  a  lost  note  or  given 
indemnification.  The  court  sustained  defendant's  contention,  and 
directed  a  verdict  for  her. 

Robertson  &  Clark  and  L.  C.  Palmer,  for  appellant. 
V.  H.  &  H.  H.  Smith,  for  appellee. 


Page  Woven  Wire  Fence  Co.  v.  Poole  573 

Grant,  J.  (after  stating  the  facts).  The  court  said  there 
were  two  theories  upon  which  plaintiff  might  have  proceeded  : 
(i)  That  the  note  was  lost;  and  (2)  that,  if  it  was  not  lost,  the 
declaration  ought  to  apprise  defendant  of  the  plaintiff's  claim  of 
the  manner  in  which  the  note  came  into  her  hands.  Before  bring- 
ing suit  plaintiff  knew  that  defendant  had  the  note  in  her  posses- 
sion. The  payor  of  a  promissory  note  cannot  be  subjected  to  a 
suit,  and  compelled  to  accept  a  bond  of  indemnity  under  the  stat- 
ute,  when  the  payee  knows  where  the  note  is.  and  has  it  in. his 
power  to  produce  it  in  court.  It  is  not  necessary  to  determine 
whether  the  note  is  negotiable  or  non-negotiable.  The  suit  is 
between  the  payee  and  the  payor.  No  third  person  is  interested. 
The  note,  which  is  only  evidence  of  the  debt,  was  in  the  posses- 
sion of  the  payor,  the  defendant.  The  declaration  does  not  allege 
that  plaintiff  is  in  possession  of  the  note,  but  only  that  it  will 
give  it  in  evidence  upon  the  trial.  Plaintiff  took  the  proper  and 
legal  steps  to  do  so,  and  they  resulted  in  the  production  of  the 
note  in  court.  The  sole  question  for  determination  was,  Had  it 
been  paid  ?  Undoubtedly  the  possession  of  the  note  by  the  payor. 
made  a  prima  facie  case  of  payment,  and  threw  the  Burdetiupon 
the  pfaintiff  to  prove"  non-pavment."  If  defenuThFTiacI  "not  paid 
it  to  an  authorized  agent  of  plaintiff,  the  question  would  be,  Was 
it  paid  by  defendant  to  some  one  under  such  circumstances  that 
the  law  protects  her  in  doing  so  ?  The  court  below  based  its  deci- 
sion on  McKinney  v.  Hamilton's  Estate,  53  Mich.  497  (19  N. 
W.  263).  That  case  does  not  apply.  The  note  there  was  in  the 
possession  of  a  third  person  claiming  title  to  it,  and  having  the 
usual  marks  of  ownership.  The  holder  of  the  note  was  not  made 
a  party  litigant,  and  the  estate  might  have  been  subjected  to  two 
suits,  and  to  two  judgments  against  it.  It  was  held  that  the 
claimant  must  be  prepared  to  produce  the  note  in  court  upon  the 
trial,  so  as  to  be  properly  marked  and  impounded.  In  the  present 
case  the  note  is  in  court,  and  under*  its  control.  All  the  parties 
interested  are  in  court,  and  are  parties  to  the  suit.  Plaintiff 
asserts  ownership,  non-payment,  and  that  the  note  did  not  come 
lawfully  into  the  possession  of  the  defendant.  The  declaration 
asserts  ownership  and  non-payment.  The  defendant  in  her  plea 
asserts  payment.  The  issue  is  clearly  drawn  by  the  pleadings, 
and  both  parties  understood  it.  The  ruling  of  the  court  was 
erroneous. 

Reversed  and  a  new  trial  ordered. 

The  other  Justices  concurred.  0_^  ^x^a^—  - 


574  Discharge  of  Party  Primarily  Liable 


Lanccy  r.  Clark  (1876),  64  N.  Y.  209. 

Appeal  from  order  of  the  General  Term  of  the  Supreme 
Court  in  the  second  judicial  department,  affirming  a  judgment 
in  favor  of  plaintiff  entered  upon  the  report  of  a  referee  and 
granting  a  new  trial.     (Reported  below,  3  Hun,  575.) 

This  action  was  brought  upon  a  promissory  note  made  by 
defendant,  payable  to  the  order  of  Frederick  Lambert,  who  was 
at  the  time  one  of  the  firm  of  Lambert  &  Lincoln.  The  note 
was  made  for  the  accommodation  of  said  firm  and  was  discounted 
by  the  North  River  Bank  and  the  proceeds  passed  to  the  credit 
of  the  firm.  Soon  after  the  firm  was  dissolved,  Lincoln  agreeing 
to  settle  up  the  firm  business.  About  a  week  before  the  note 
matured  Lincoln  wrote  to  the  plaintiff,  who  lived  in  Canada,  ask- 
ing him  to  take  the  note  and  to  send  money  to  take  it  up ;  this 
the  plaintiff  did.  Lincoln  deposited  the  money  in  the  bank  to 
his  individual  credit  and  upon  the  day  the  note  fell  due  gave  his 
check  for  the  amount  thereof.  He  received  the  note  and  directed 
the  clerk  to  have  it  protested  "to  hold  the  indorser  and  maker." 
Nothing  was  said  by  him  about  a  purchase  or  transfer  of  the  note 
or  that  he  was  acting  as  agent,  and  plaintiff's  name  was  not  men- 
tioned nor  the  bank  informed  that  the  money  belonged  to  plain- 
tiff. The  note  was  protested  and  then  sent  by  Lincoln  to  plain- 
tiff.   It  was  not  canceled  by  the  bank. 

Thos,  H.  Hubbard,  for  the  appellant. 
C.  F.  Brown,  for  the  respondent. 

Earl,  J.  The  defendant  made  the  note  in  suit  for  the  ben- 
efit and  accommodation  of  the  firm  of  Lambert  &  Lincoln.  It 
was  discounted  and  the  proceeds  passed  to  their  credit  by  the 
North  River  Bank.  Each  member  was  therefore  bound,  as  to 
the  maker,  to  pay  the  note,  and  thus  save  him  from  liability  on 
account  thereof.  Before  the  note  became  due  the  firm  was  dis- 
solved, and  Lincoln  was  to  close  up  its  business.  Plaintiff  lived 
in  Canada,  and  Lincoln  wrote  him,  requesting  him  to  take  up  the 
note  and  furnish  the  money  for  that  purpose.  Plaintiff,  a  few 
days  before  the  maturity  of  the  note,  sent  Lincoln  the  money, 
which  he  placed  in  the  bank  to  his  individual  credit.  On  the  day 
the  note  fell  due  he  went  to  the  bank,  and,  by  his  individual  check, 
paid  the  note  to  the  discount  clerk,  who  knew  at  the  time  that  it 
was  an  accommodation  note.  He  did  not  assume  to  act  as  agent 
for  any  one,  and  did  not  ask  to  have  the  note  transferred  to  any 


Lancey  v.  Clark 


575 


one,  and  did  not  mention  plaintiff's  name  in  any  way.    It  is  true 
that  he  asked  to  have  the  note  protested  so  that  he  could  hold 
the  indorser  and  maker,  but  he  did  not  disclose  why  he  wanted 
to  hold  them.    After  he  had  thus  paid  and  taken  it,  he  sent  it  to 
the  plaintiff.     Upon  such  a  state  of  facts,  did  plaintiff  take  his    } 
title  from  the  bank  or  from  Lincoln?     If  he  took  it  from  the  / 
bank,  he  took  the  place  of  the  bank,  and  his  title  and  right  to  I 
enforce  it  were  as  good  as  those  of  the  bank  at  the  time  he  took  I 
it.     But  if  he  took  it  from  Lincoln,  it  being  past  due,  he  took  it  J 
subject  to  any  defence  defendant  could  have  made  if  sued  by/ 
Lincoln,  and  in  such  case  defendant's  defence  would  have  been 
perfect.     Iie_could  not  be  successfully  sued  by  either  of  the  pqr- 

1k'  made  the  note. 

from  the  bank.     It  matters  not    ", 


/hose  accommodation 
Plaintiff  did  not  take  title 


*K4L  V 


that  he  furnished  the  money,  and  that  Lincoln  promised  to  use   . 
it  in  taking  up  this  note  for  him.     It  matters  not  that  the  note  . 
was  protested  so  that  the  indorser  and  maker  could  be  held,  or 
that  the  bank  did  not  intend  absolutely  to  discharge  and  cancel  ' 
the  note.    The  question  is,  did  the  bank  transfer  or  sell  the  note  , 
to  the  plaintiff?     To  make  a  sale  or  transfer  takes  two  parties, 
one  to  sell  and  the  other  to  buy,  and  the  bank  could  not  be  made 
a  seller  without  its  knowledge  or  consent.     It  was  not  bound  to 
sell  or  transfer  the  note.    All  it  was  bound  to  do  was  to  surrender   j 
it  upon  payment  by  the  person  liable  to  pay  it.    A  seller  in  such 
a  case  incurs  some  obligation  by  the  sale,  although  he  does  not  "T 
indorse   the   paper.      He    impliedly   warrants   that   the   paper   is 
genuine  and  all  it  purports  to  be  on  its  face,  and  he  cannot  be 
drawn  into  this  implied  warranty  without  his  consent.     (Eastman 
v.  Plurner,  32  N.  H.  238 ;  Delaware  Bank  v.  Jarzns,  20  N.  Y. 
226;  Morrison  v.  Currie,  4  Duer,  79;  Aldrich  v.  Jackson,  5  R.  I. 
218;  2  Parsons  on  Notes  and  Bills  [2d  ed.],  37.)     All  the  bank 
did  in  this  case  was  to  take  payment  of  the  note,  and  deliver  it 
up  to  a  party  paying  and  liable  to  pay,  after  protesting  it,  so  that 
he  could  make  such  use  of  it  as  the  law  and  the  facts  would 
authorize.    It  did  not  transfer  or  intend  to  transfer  it.    The  plain- 
tiff, therefore,  took  no  title  to  it  from  the  bank,  but  he  took  it 
from    Lincoln,    and    cannot,    therefore,    enforce    it    against    the 
defendant. 

The  order  of  the  General  Term  must,  therefore,  be  affirmed, 
and  judgment  absolute  ordered  against  the  plaintiff,  with  costs. 

All  concur. 

Order  affirmed  and  judgment  accordingly. 


576  Discharge  of  Party  Primarily  Liable 


Larkin  v.  Hardcnbrook  (1882),  90  X.  V 


"•  ~>  ? 


Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  second  judicial  department,  entered  upon  an  order 
made  February  15,  1881,  which  affirmed  a  judgment  in  favor  of 
defendant,  entered  upon  the  report  of  a  referee. 

This  action  was  brought  to  recover  the  amount  of  a  promis- 
sory note  executed  by  defendant  to  Isaac  C.  Loper,  plaintiff's 
testator,  which  the  complaint  alleged  had  been  lost  or  destroyed. 

The  referee  found  that  said  Loper  executed  to  defendant  a 
deed  of  certain  premises,  and  in  consideration  thereof,  the  note 
in  suit  was  executed,  and  delivered  to  the  grantor,  who  there- 
after voluntarily  and  intentionally  canceled,  destroyed,  and 
surrendered  up  the  same  to  the  defendant. 

Further  facts  appear  in  the  opinion. 

/.  /.  Perry,  for  appellant. 

John  J.  Armstrong,  for  respondent. 

Miller,  J.  The  note  described  in  the  complaint  was  given 
by  the  defendant  to  the  plaintiff's  intestate,  upon  the  convey- 
ance to  him  of  certain  real  estate,  and  as  a  consideration  there- 
for, on  the  nth  day  of  October,  1870.  The  referee  before  whom 
the  trial  was  had  has  found  that  in  or  about  the  month  of 
January,  1871,  the  grantor  voluntarily  and  intentionally  can- 
celed, destroyed  and  surrendered  up  to  the  defendant  said  security 
and  note,  and  as  a  conclusion  of  law.  the  intestate  discharged 
the  defendant  thereon,  and  that  no  recovery  could  be  had  either 
on  the  note  or  on  the  original  consideration.  We  think  that 
the  finding  of  fact  by  the  referee  is  sufficiently  supported  by  the 
evidence,  and  that  the  conclusion  arrived  at  was  the  legal  and 
necessary  result  of  said  finding.  The  rule  seems  to  be  well  settled 
by  the  authorities  that  where  an  obligee  delivers  up  the  obligation 
which  he  holds  against  another  party,  with  the  intent  and  for 
the  purpose  of  discharging  the  debt,  where  there  is  no  fraud  or 
mistake  alleged  or  proven,  that  such  surrender  operates  in  law 
as  a  release  and  discharge  of  the  liability  thereon;  nor  is  any 
consideration  required  to  support  such  a  transaction  when  it  has 
been  fully  executed.  (Bouv.  Law  Die,  title  Release;  Albert's 
Exrs.  v.  ZiegWs  Exrs.,  29  Penn.  St.  50;  Beach  v.  Endress,  51 
Barb.  570;  Doty  v.  Wilson,  5  Lans.  10.) 

There  certainly  could  not  be  higher  evidence  of  an  intention 
to  discharge  and  cancel  a  debt  than  by  a  destruction  and  surren- 


Larkin  v.  Hardenbrook  577 

der  of  the  instrument  which  created  it,  to  a  party  who  is  liable 
by  virtue  of  the  same.  In  this  case  the  evidence  shows  that  the 
deed  and  the  note  were  executed  under  somewhat  peculiar  cir- 
cumstances, and  it  may  perhaps  be  inferred  that  the  design  was 
to  protect  the  property  of  the  grantor  from  liability  to  creditors. 
While  these  facts  would  not  exonerate  the  defendant  from  an 
obligation  he  assumed  in  taking  the  conveyance  and  giving  the 
note,  yet  under  the  decisions  cited  the  grantor  had  a  perfect  right 
to  surrender  and  cancel  the  note,  and  the  testimony  shows  that 
on  being  applied  to  for  the  note,  and  it  being  stated  to  him  that 
the  business  was  settled,  he  left  the  room  where  he  was,  returned 
and  produced  a  piece  of  paper  with  the  defendant's  signature,, 
he  said  it  was  the  signature  to  the  note  and  "that  settled  it,"  and 
handed  the  same  to  the  person  who  made  the  application  on  behalf 
of  the  defendant. 

These  facts,  together  with  the  findings  of  the  referee,  are, 
we  think,  conclusive  in  regard  to  the  surrender  or  destruction  of 
the  note,  and  upon  no  legal  ground  can  the  action  of  the  plaintiff 
be  maintained.  The  fact  that  the  deed  was  absolute  upon  its  face 
and  expressed  a  consideration  cannot  affect  the  right  of  the 
holder  of  the  note  to  cancel  and  discharge  it,  or  to  make  a  valid 
gift  by  delivery  of  the  same  to  the  maker  thereof,  and  the  admis- 
sion of  evidence  to  show  such  a  transaction  does  not  violate  the 
well-established  rule  of  law  that  parol  evidence  is  inadmissible, 
and  cannot  be  introduced  to  contradict  the  deed  or  to  impair  its 
legitimate  effect.  The  execution  of  the  deed  and  note,  and  their 
delivery,  constituted  one  transaction,  and  the  surrender  of  the 
note  is  another  and  a  different  one,  distinct  and  independent  of 
itself,  and  having  no  relation  whatever  to  the  original  transac- 
tion. Nor  is  proof  of  such  surrender  evidence  tending  to  estab- 
lish an  intention  on  the  part  of  the  grantee  to  reconvey  the  prop- 
erty, but  proof  of  the  act  of  the  grantor  by  which  he  released 
and  discharged  the  grantee  from  the  obligation  which  he  had 
assumed.  We  do  not  perceive  that  any  rule  of  evidence  was 
violated  by  the  admission  of  the  evidence  establishing  the  sur- 
render and  cancellation  of  the  note  by  the  original  grantor.  The 
fact  that  defendant  did  not  offer  to  reconvey  the  premises  is  not 
a  proper  subject  of  consideration  in  this  action,  which  involves 
simply  the  liability  of  the  defendant  upon  the  note  in  question. 

It  may  be  conceded,  as  is  claimed  by  the  counsel  for  the 
appellant,  that  the  money  consideration  and  acknowledgment  of 
its  payment  expressed  in  the  deed  is  prima  facie  evidence  that 
such  was  the  consideration ;  but  this  presumption  does  not  inter- 


578  Discharge  of  Party  Primarily  Liable 

fere  with  the  right  to  show  an  independent  act  by  which  an 
obligation  taken  in  consideration  of  a  conveyance  was  given  up 
voluntarily  to  the  party  who  executed  it. 

After  a  careful  consideration  of  the  position  urged  hy  the 
counsel  for  the  appellant  and  the  authorities  cited  by  him,  we 
are  unable  to  discover  any  ground  of  error  in  the  trial  court  in 
holding  that  the  complaint  should  be  dismissed. 

There  was  no  error  on  the  trial  in  the  admission  of  testimony 
or  in  the  refusals  to  find  as  requested  by  the  counsel  for  the 
appellant,  or  in  any  of  the  rulings  to  which  exceptions  were 
taken  by  him. 

The  judgment  should  be  affirmed. 

All  concur,  except  Rapallo,  J.,  absent. 

Judgment  affirmed. 


Shaw  v.  Pratt  (iSjq),  22  Pick.  305. 

Assumpsit  on  a  joint  and  several  promissory  note  for  the 
sum  of  $3464,  dated  November  30,  1833,  made  by  the  defendant 
and  John  B.  Pratt,  and  payable  to  the  plaintiff  or  bearer,  in 
annual  instalments  with  interest. 

The  defendant  offered  in  evidence  a  writing  dated  June  23, 
1838,  signed  by  the  plaintiff,  but  not  under  seal,  which  was  in 
the  following  words : 

"In  consideration  of  an  assignment  by  John  B.  Pratt  of  a 
mortgage  and  the  notes  given  to  him  by  Sydney  S.  Pratt  for 
$2800,  to  me,  I  hereby  agree  and  bind  myself  and  my  heirs  to 
discharge  the  note,  being  a  joint  and  several  one.  signed  by 
John  Pratt  and  John  B.  Pratt,  and  held  by  me,  so  far  as  John 
B.  Pratt  is  or  may  be  liable  to  pay  the  same,  except  that  this 
agreement  shall  not  operate  in  any  way  to  discharge  or  affect 
the  suit  already  begun  by  me  against  John  Pratt,  and  for  which 
a  farm  in  New  Ashford  has  been  attached  on  said  note." 

Tt  was  admitted  by  the  plaintiff,  that  the  note  in  suit  was 
given  for  the  consideration  of  the  sale  of  a  tract  of  land  to  the 
defendant ;  and  that  the  defendant  had  subsequently  conveyed 
the  land  to  John  B.  Pratt,  who  verbally  agreed  with  the  defend- 
ant to  assume  the  payment  of  the  note;  but  the  plaintiff  had  no 
agency   in   this  arrangement  and   never  assented  thereto. 

It  was  further  admitted  by  the  parties,  that  the  notes  received 
by  the  plaintiff  of  John  B.  Pratt,  were  not  due,  but  were  payable 
at  a  future  time. 

The  defendant  contended :    t.  That  he  was  legally  discharged 


Shaw  v.  Pratt  579 

from  all  liability  to  the  plaintiff  upon  the  note  in  suit;  and 
2.  That  the  payment  of  the  sum  of  $2800  was  to  be  applied  in 
discharge  of  so  much  of  the  note  as  should  first  become  due  and 
payable. 

As  the  case  presented  merely  questions  of  law,  it  was  taken 
from  the  jury  by  consent.  If  in  the  opinion  of  the  whole  court, 
the  plaintiff  was  entitled  to  maintain  this  action,  the  defendant 
was  to  be  defaulted,  and  damages  to  be  assessed  for  such  sum 
as  the  court  should  direct.  But  if  the  court  should  be  of  opinion 
that  the  evidence  constituted  a  legal  defence  to  the  action,  the 
plaintiff  was  to  become  nonsuit. 

Briggs  and  Porter,  for  the  plaintiff. 

Rockwell  and  Tucker,  for  the  defendant. 

Dewey,  J.,  delivered  the  opinion  of  the  court.  It  is  con- 
tended, that  the  agreement  made  by  the  plaintiff  with  John  B. 
Pratt,  one  of  the  promisors  of  the  note  declared  upon  in  the 
present  action,  to  discharge  him  from  all  liability  to  pay  the 
same,  has  the  effect  to  release  and  discharge  his  co-promisor,  the 
present  defendant. 

There  are,  it  seems  to  us,  several  objections  to  this  instru- 
ment as  a  release  of  the  defendant. 

1.  It  is  very  doubtful  whether  it  is  anything  more  than  an 
agreement  to  discharge,  and  therefore  not  to  have  the  effect  of  a 
present  actual  discharge. 

2.  As  an  agreement  to  discharge  John  B.  Pratt,  it  is  accom- 
panied with  an  express  stipulation  excluding  any  such  effect  as 
to  the  defendant. 

3.  There  is  another  objection  entirely  fatal  to  this  defence. 
which  we  have  more  particularly  considered.  The  instrument 
relied  upon  as  a  release  of  all  the  promisors  of  the  note,  is  not 
under  seal,  and  is  not  therefore  a  technical  release.  Nothing 
but  a  technical  release  under  seal  discharging  one  of  several 
promisors,  can  operate  to  discharge  the  other  promisors  from 
their  liability  on  the  contract.  This  principle  is  well  settled, 
and  sustained  by  many  adjudicated  cases.  Walker  v.  M'Culloch, 
4  Greenleaf,  421 ;  Harrison  v.  Close,  2  Johns.  R.  449;  Rowley  v. 
Stoddard.  7  Johns.  R.  209;  De  Zcng  v.  Bailey,  9  Wendell,  336. 

The  only  remaining  inquiry  is,  whether  the  amount  received 
from  John  B.  Pratt,  shall  be  applied  in  payment  of  the  money 
already  due.  or  be  taken  to  be  in  discharge  of  that  part  of  the 
note  which  is  payable  at  a  future  clay.  Upon  recurring  to  the 
facts  stated  in  the  case,  it  appears,  that  there  was  no  actual  pay- 
ment of  monev.  but  a  transfer  to  the  plaintiff  of  a  certain  mort- 


i>0  Discharge  of   Party   Primarily  Liable 

gage  and  notes,  which  notes  were  not  payable,  by  the  terms  of 
them,  until  a  period  long  after  the  transfer.  Had  there  been  no 
application  of  this  payment,  by  the  mutual  understanding  of  the 
parties,  the  question  must  have  been  decided  by  those  general 
rules  which  have  been  adopted  in  the  application  of  payments 
in  such  cases;  but,  as  it  seems  to  us,  in  the  present  instance,  the 
parties  have  by  their  own  stipulations  provided  for  the  application 
of  the  amount  thus  received.  The  agreement  was  in  terms,  that 
this  payment  was  not  to  operate  in  any  way  to  discharge  or  effect 
this  suit. 

This  stipulation  clearly  imports  some  other  and  different 
application  of  the  amount  received  by  the  assignment  of  the  notes 
and  mortgage,  than  in  discharge  of  that  part  of  the  note  upon 
which  judgment  is  now  asked  by  the  plaintiff.  It  can  have  the 
limited  effect  stipulated  by  the  parties  in  the  written  instrument, 
only  by  applying  the  same  in  discharge  of  that  part  of  the  note 
not  due,  and  entering  judgment  for  the  plaintiff  for  so  much  as 
remains  unpaid  of  that  part  of  the  note  which  had  become  payable 
at  the  time  of  the  institution  of  the  suit. 

Judgment  for  the  plaintiff. 


The  Madison  Square  Bank  v.  Fierce  (1893),  I37  N.  Y.  444. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  first  judicial  department,  entered  upon  an  order 
made  December  31,  1891,  which  affirmed  a  judgment  in  favor 
of  plaintiff  entered  upon  a  decision  of  the  court  on  trial  at  Circuit. 

This  was  an  action  upon  a  promissory  note. 

The  facts,  so  far  as  material,  are  stated  in  the  opinion. 

Dai'id  Kcanc,  for  appellant. 
John  Delahunty,  for  respondent. 

Finch,  J.  We  have  a  novel  and  interesting  question  before 
us  on  this  appeal,  although  its  apparent  importance  will  lessen 
as  we  pass  from  first  impressions  to  some  slower  reflection.  It 
arises  upon  facts  which  are  very  brief  and  simple  and  may  at 
once  be  stated.  The  defendant,  Pierce,  made  his  promissory 
note  payable  to  his  own  order  and  indorsed  it  to  the  Bates  Co., 
Limited,  which  indorsed  it  to  the  plaintiff  bank;  the  latter  dis- 
counting it  and  paying  the  proceeds  over  to  the  immediate 
indorscr.  Thereafter  the  Bates  Co.  became  insolvent  and  passed 
into  the  hands  of  a  receiver,  who  paid  to  the  bank  upon  the  liabil- 


Madison  Square  Bank  v.   Pierce  581 

ity  of  the  indorser  seventy-three  and  one-quarter  per  cent  of  the 
amount  secured  by  the  note.  Later,  the  bank  sued  Pierce,  the 
maker,  and  recovered  judgment  for  the  full  amount  of  the  note 
in  spite  of  the  proof  showing  the  payment  made  by  the  receiver, 
and  in  disregard  of  the  claim  asserted  by  the  defendant  that  he- 
should  only  be  held  liable  for  the  balance  remaining  unpaid. 
That  judgment  has  been  affirmed  by  the  General  Term,  Judges 
Daniels  and  Barrett  each  writing  very  strong  and  valuable  opin- 
ions in  support  of  their  doctrine,  and  relying  upon  the  authority 
of  Jones  v.  Broadhurst  (9  M.  G.  &  S.  177 ;  67  Eng.  Com.  L.  175), 
which  fully  warrants  their  conclusion.  The  question  does  not 
seem  ever  before  to  have  arisen  in  this  country,  and  we  are  left 
at  liberty  to  examine  the  English  rule  and  to  follow  it  or  not  as 
we  approve  or  disapprove  its  logic  and  its  consequences. 

We  are  not  to  regard  the  note  as  being  accommodation 
paper,  but  must  assume  its  transfer  for  value.  The  form  of  the 
transaction  is  equivalent  to  what  it  would  have  been  if  the  Bates 
Co.  had  been  named  as  payee,  and  loses  none  of  its  force  by  the 
intervention  of  the  maker  as  first  indorser.  That  indorsement, 
in  the  form  adopted,  was  needed  for  the  regular  transfer  of  title, 
but  does  not  change  or  affect  the  nature  and  character  of  the 
maker's  liability.  He  remains  the  ultimate  debtor,  the  person 
who  ought  to  pay  the  debt,  in  preference  to  and  in  exoneration 
of  all  the  other  parties  to  the  paper,  who  in  some  form  or  other 
are  entitled  to  have  final  recourse  to  him.  And  it  is  to  the  case 
of  such  a  maker  of  the  note  or  such  an  acceptor  of  the  bill  of 
exchange  that  the  English  rule  alone  applies;  and  it  is  explicitly 
declared  inapplicable  where  the  indorser  or  drawer  is  the  real 
debtor,  although  in  form  only  secondarily  liable. 

Pierce,  therefore,  was  the  ultimate  debtor,  and  the  party 
who  ought  to  pay  the  note,  both  in  discharge  of  the  obligation  to 
the  holder  and  in  exoneration  of  the  indorser.  When  the  bank 
sued  on  the  note,  it  was  the  legal  holder  and  the  legal  party  in 
interest.  Upon  production  of  the  paper  and  the  usual  proof, 
judgment  against  the  maker  for  the  full  amount  was  inevitable, 
unless  some  defense  should  be  interposed.  The  only  possible 
one  for  Pierce  was  part  payment,  and  he  was  compelled  to  assert, 
and  his  counsel  are  compelled  to  argue,  that  the  money  paid  by 
the  indorser  to  the  holder  inured  to  the  benefit  of  the  maker  as 
a  payment  on  his  debt.  But  that  doctrine  cannot  prevail  for  very 
obvious  reasons.  The  indorsees  payment  did  not  in  the  least 
lessen  or  satisfy  the  maker's  debt.  He  owed  it  all  exactly  as 
before.     What  had  happened  possibly   changed   somewhat  the 


582  Discharge  of  Party  Primarily  Liable 

real  creditor,  but  left  the  whole  debt  due  and  unpaid.  To  whom 
he  should  pay  might  become  a  new  question,  but  how  much  he 
should  pa)  in  discharge  of  the  note  was  not  made  doubtful  in 
any  degree.  What  the  receiver  advanced  to  the  holder  is  famil- 
iarly described  as  a  payment ;  but  it  was  such  relatively  to  the 
indorser's  liability  alone  ;  while  relatively  to  the  obligation  of  the 
maker,  it  was  an  equitable  purchase  instead  of  a  payment.  That 
view  of  it  was  taken  in  a  very  early  case,  the  decision  of  which 

tided  necessarily  upon  it.  In  Callow  v.  Lawrence  (3  Alan. 
&  Sel.  95),  it  appeared  that  one  Pywell  drew  a  bill  upon  Law- 
rence to  his  own  order,  which  Lawrence  accepted.  The  drawer 
indorsed  the  bill  to  Taylor,  who  discounted  it  and  thereafter 
indorsed  it  to  Barnett.  It  was  protested  for  non-payment.  The 
drawer  paid  Barnett  the  full  amount  and  took  the  bill  and, 
striking  off  the  indorsements  of  Taylor  and  Barnett,  transferred 
the  bill  to  Callow,  who  sued  the  acceptor  upon  it.  The  latter 
claimed  that  the  bill  was  paid  and  extinguished,  which  the  court 
denied,  saying  that  the  drawer  "became  the  purchaser  of  the  bill" 
when  he  paid  and  took  it  up  out  of  Barnett's  hands ;  that  it  was 
not  paid  by  the  drawer,  animo  solvendi,  in  order  to  extinguish 
it,  but  only  to  redeem  himself  from  the  situation  in  which  he 
stood.  That  must  always  be  true  of  payment  by  indorser  to 
holder,  where  the  maker  is  the  ultimate  debtor.  To  the  extent 
of  the  money  paid,  the  indorser  becomes  equitably  entitled  to  be 
substituted  to  the  rights  and  remedies  of  the  holder,  and  becomes, 
pro  tanto,  the  beneficial  owner  of  the  debt;  so  that  the  maker's 
obligation  to  pay  the  note  in  full,  at  first  due  to  the  holder  solely 
in  his  own  right,  becomes,  after  the  part  payment  by  the  indorser, 
still  wholly  due  to  the  holder,  but  partly  in  his  own  right  and 
partly  as  trustee  for  the  indorser.  A  court  of  law  cannot  split 
die  note  into  parts,  and  must  act  upon  the  legal  interest  and 
ownership. 

In  the  present  case  there  was  no  privity  between  maker  and 
indorser  as  it  respects  the  action  of  the  latter.  He  paid  not  as 
the  agent  of  the  maker,  not  at  his  request,  not  for  his  benefit. 
and  under  no  duty  to  relieve  him,  but  independently,  upon  his 
own  obligation,  to  lessen  his  own  responsibility,  and  not  at  all  to 
discharge  the  ultimate  debt  which  it  was  the  maker's  duty  to  pay. 
It  seems  very  clear,  therefore,  that  the  maker  cannot  utilize  for 

■  iwn  benefit  a  payment  which,  as  to  him,  is  not  a  payment 
upon  the  debt.  It  becomes,  as  I  have  said,  merely  a  question  to 
whom  he  shall  pay  and  who  may  sue  for  and  collect  the  whole 
unpaid  sum.     In  that  question  the  maker  has  no  concern  beyond 


Madison  Square  Bank  v.  Pierce  583 

the  inquiry  whether  he  may  become  liable  to  different  persons 
for  the  same  debt  and  encounter  the  danger  of  paying  it  twice. 
I  can  discover  no  such  peril.  The  judgment  in  favor  of  the 
holder  is  a  bar  to  any  other  suit  on  the  same  note,  and  payment 
to  the  holder  discharges  the  note  utterly.  Ordinarily,  the  indorser 
cannot  recover  except  upon  the  note  and  as  holder  and  in  accord- 
ance with  the  law  merchant.  If  he  ever  has  any  other  right  of 
action  against  the  maker,  it  is  either  in  equity  or  by  force  of 
some  facts  beyond  the  bare  relation  established  by  the  paper. 
And  where  the  note  is  merged  in  the  holder's  judgment  or  paid 
in  full  to  him  by  the  maker,  the  indorser's  only  right  is  through 
the  judgment  or  against  the  proceeds,  if  he  has  made  a  partial 
payment  to  the  holder.  That  does  the  indorser  no  wrong.  If 
he  is  not  content  that  the  holder  shall  collect  to  some  extent  as 
his  trustee,  he  may  prevent  it  by  payment  in  full  to  the  holder 
and  so  entitle  himself  to  the  possession  of  the  note  on  which  to 
sue,  or  if  judgment  has  been  obtained,  to  be  subrogated  to  all 
of  the  rights  of  the  plaintiff  therein. 

I  think  this  result  is  clearly  indicated  by  our  own  decisions. 
In  Mechanic's  Bank  v.  Hazard  (13  John.  353),  the  maker  of  the 
note  had  been  arrested  in  an  action  upon  it  and  his  bail  sought 
to  relieve  themselves  by  force  of  a  payment  made  by  the  indorser 
to  the  holder,  but  such  effect  was  denied  to  it ;  the  court  saying 
that  it  was  not  a  payment  by  or  on  behalf  of  the  maker,  or  of 
which  he  or  his  bail  could  avail  themselves.  And  in  Guernsey  v. 
Burns  (25  Wend.  411),  where  the  suit  was  by  the  holder,  repre- 
senting the  legal  title  and  interest,  it  was  said  to  be  no  defense 
to  the  maker  and  no  concern  of  his  that  some  property  in  the 
note  was  in  another. 

It  thus  becomes  apparent  that  there  is  no  very  great  import- 
ance in  the  question  which  method  of  securing  payment  from 
the  maker  is  adopted  since  the  same  result  follows  from  each 
and  that  it  narrows  down  to  the  inquiry  whether  as  matter  of 
correct  doctrine  and  of  convenience  in  practice  the  holder  may 
recover  the  whole  debt  against  maker  or  acceptor  for  himself 
and  as  trustee  for  the  indorser  to  the  extent  of  his  acquired  inter- 
est ;  or  whether  he  shall  take  judgment  only  for  the  balance, 
leaving  the  indorser  to  sue  in  some  way  and  on  some  theory, 
which  apparently  could  not  be  upon  the  note  because  already 
merged  in  the  judgment,  but  might  be  for  money  paid  for  use  of 
the  maker  since  he  gets  the  benefit  of  it  in  the  reduction  of  the 
judgment,  as  was  held  in  Pozvnal  v.  Ferrand  (6  B.  &  Cress.  439), 
where  the  holder  deducted  the  indorser's  payment  from  the  levy 


5»4  Discharge  of  Party   Primarily  Liable 

against  the  maker.  The  former  seems  to  me  to  be  the  logical  and 
convenient  method  and  so  1  think  we  should  follow  the  English 
doctrine. 

I  have  not  underrated  the  assault  made  upon  it  by  the  appel- 
lant. He  asserts  that  Jones  v.  Broadhurst  is  contrary  to  the 
earlier  cases  and  has  been  criticized  and  shaken  by  the  later 
ones.  I  have  examined  them  all,  with  some  wonder  at  the 
amount  of  learning  and  ingenuity  expended  upon  the  subject. 
i  Pierson  v.  lhinlop,  Cowper.  571 ;  Walwyn  v.  St.  Quintin,  1  Bos. 
&  P.  652;  Bacon  v.  Searles,  1  H.  Bl.  88;  Hemming  v.  Brook, 
1  Car.  &  M.  57;  Randall  v.  Moon,  12  C.  B.  261 ;  Cook  v.  Lister, 
13  C.  B.  [N.  S.]  543;  Solomon  v.  Davis,  1  Cahabe  &  Ellis,  83; 
Thornton  v.  Maynard,  10  Com.  PI.  L.  R.  695.)  The  prior  cases 
were  very  fully  and  carefully  reviewed  by  Baron  Cresswell  in 
the  opinion  rendered  in  Jones  v.  Broadhurst,  and  of  the  subse- 
quent cases  1  deem  it  only  necessary  to  say,  that,  along  with  seme 
criticism  and  occasional  doubt,  the  doctrine  has  remained  sub- 
stantially unshaken,  and  the  case  last  cited  was  declared  by  Lord 
Coleridge  to  be  the  accepted  law. 

It  must  not  be  forgotten,  however,  and  I  may  prudently 
repeat,  that  the  doctrine  has  no  application  to  accommodation 
paper,  and  rests  wholly  upon  the  actual  and  ultimate  indebted- 
ness of  maker  or  acceptor  as  the  party  who  ought  to  pay.  In 
such  a  case  as  that,  which  correctly  describes  the  one  now  before 
us,  and  where  no  disturbing  facts  affect  the  relations  of  the 
parties  as  fixed  by  the  paper  itself,  I  think  the  holder  may  sue 
and  recover  the  full  amount,  receiving  so  much  of  the  proceeds 
as  represents  a  part  payment  by  the  indorser  as  trustee  for  him. 

It  follows  that  the  judgment  should  be  affirmed,  with  costs. 

All  concur,  except  Maynard,  J.,  dissenting. 

Judgment  affirmed. 


Schzvartzman  v.  Post  imp.   (1904),  94  App.  Div.  474,  87  N.  Y. 
Supp.  8/2,  84  N.  Y.  Supp.  922. 

Appeal  by  the  plaintiff,  Abraham  Schwartzman,  from  an 
order  of  the  Appellate  Term  of  the  Supreme  Court,  entered  in 
the  office  of  the  clerk  of  the  county  of  New  York  on  the  16th 
day  of  November,  1903,  which  order  reversed  a  judgment  of  the 
City  Court  of  the  city  of  New  York  in  favor  of  the  plaintiff, 
entered  in  the  office  of  the  clerk  of  said  court  on  the  15th  day  of 
February,  1903.  upon  the  verdict  of  a  jury,  and  also  (as  stated 


SCHWARTZMAN    V.    POST  585 

in  the  notice  of  appeal)  from  a  judgment  of  reversal  entered  in 
the  office  of  the  clerk  of  the  city  of  New  York  on  the  13th  day 
of  January,  1904,  upon  said  order  of  the  Appellate  Term. 

Alexander  Rosenthal,   for  the  appellant. 
B.  Lewinson,  for  the  respondent. 

Determination  of  Appellate  Term  affirmed,  with  costs,  on 
the  opinion  of  the  court  below,  and  judgment  absolute  ordered 
for  defendant,  with  costs. 

Present — Van  Brunt,  P.  J.,  Patterson,  Ingraiiam,  Mc- 
Laughlin and  Laughlin,  JJ. 

Laughlin,  J.  (dissenting).  According  to  the  testimony  of 
the  plaintiff  the  note  was  not  paid  nor  was  it  surrendered  up  to 
the  defendant  Post  upon  the  understanding  that  it  was  to  be 
deemed  unpaid,  but  on  the  distinct  agreement  that  the  defendants 
were  to  remain  liable  for  the  balance  for  which  plaintiff  has 
recovered  in  this  action.  The  defendants  did  not,  therefore,  in 
my  opinion,  by  this  surrender  become  holders  of  the  note  in  their 
"own  right"  within  the  intent  and  meaning  of  subdivision  5  of 
section  200  of  the  Negotiable  Instruments  Law  (Laws  of  1897, 
chap.  612),  and  the  transaction  did  not  constitute  a  discharge 
of  the  note.  The  defendant  Post  merely  became  the  bailee  there- 
of for  the  payee. 

The  following  is  the  opinion  delivered  by  Freedman,  P.  J., 
in  the  court  below : 

Freedman,  P.  J.  This  action  was  brought  to  recover  an 
alleged  balance  of  $1,750  claimed  to  be  due  upon  a  demand  note 
for  $5,000,  dated  May  1,  1899,  payable  to  the  order  of  the  maker, 
the  defendant  Post,  and  indorsed  by  him  and  his  father,  the 
defendant  Postawalsky.  Postawalsky  was  not  served  with  the 
summons  and  did  not  appear.  After  a  trial  by  a  jury  a  verdict 
for  the  amount  claimed  was  rendered  in  favor  of  the  plaintiff. 
The  plaintiff's  complaint,  originally,  averred  that  he  is  "now  the 
lawful  owner  and  holder"  of  the  note  in  suit,  but  it  was  subse- 
quently amended  by  striking  out  the  allegation  that  plaintiff  was 
the  "holder."  The  answer  denied  the  delivery  of  the  note  to  the 
plaintiff  and  that  he  was  the  owner  thereof,  and  set  up,  among 
other  defenses,  that  the  note  had  been  delivered  up  and  surren- 
dered to  Post,  the  maker,  about  April  9,  1900,  and  that  defendant 
had  ever  since  been  the  holder  thereof. 

At  the  beginning  of  the  trial,  the  note,  in  pursuance  of  a 
notice  given  by  plaintiff's  attorney,  was  produced  by  the  defend- 


586  Discharge  of  Tarty  Primarily  Liable 

ant    Post,   and   by   plaintiff's   attorney   offered   and    received   in 
evidence. 

The  testimony  of  the  transaction  out  of  which  the  cause  of 
action  arose,  as  given  by  the  parties,  is  very  conflicting,  and  a 
reading  of  the  record  convinces  one  that  neither  party  lias  given 
a  complete  statement  of  the  facts. 

The  plaintiff's  version,  however,  was  accepted  and  helieved 
by  the  jury,  and  must,  therefore,  for  the  purposes  of  this  appeal 
be  taken  as  true,  and,  briefly  stated,  as  follows: 

In  1898  the  plaintiff  and  the  defendant  Postawalsky  were 
copartners  in  the  cloak  business.  This  partnership  was  di>solved 
by  mutual  consent  in  1899,  and  plaintiff  received  the  note  in  ques- 
tion for  his  interest  in  said  husiness.  Subsequently,  upon  demand- 
ing payment  of  the  note  of  the  defendants,  Post  told  the  plaintiff 
that  he  (Post)  could  not  pay  the  full  amount  of  the  note,  but 
would  pay  $2,000  if  the  plaintiff  would  give  up  the  note.  This 
offer  was"  afterwards  increased  by  Post  to  the  sum  of  $2,500. 
Plaintiff  then  authorized  his  brother  (Schwartz)  to  continue  the 
negotiations  with  Post.  For  some  reason,  not  appearing,  the 
plaintiff  had  placed  the  note  with  one  Kohn.  who  testifies  that 
he  also  called  upon  Post  in  regard  to  obtaining  payment  of  the 
note,  and  that  Post  refused  to  pay  in  full.  Plaintiff's  brother 
(Schwartz)  testifies  to  similar  conversations  with  Post.  In  all 
of  the  conversations  Post  is  alleged  to  have  said,  in  substance, 
that  unless  the  amount  offered  was  accepted  by  the  plaintiff  and 
the  note  given  up,  that  he,  1'ost,  would  "protect"  himself,  that 
"I  have  been  through  the  mill  once  before  and  I  know  how  to 
take  care  of  myself."  These  witnesses  also  testify  that  Post 
promised  to  pay  the  balance  of  his  indebtedness,  but  insisted 
upon  the  surrender  of  the  note  to  him.  Matters  between  the 
parties  culminated  in  a  meeting  of  Post,  Kohn,  one  Kohler,  attor- 
ney  for  Post,  one  Essberg,  attorney  for  plaintiff  or  his  brother 
Schwartz,  and  Schwartz,  at  Essberg's  office,  at  which  time  Post 
paid  $2,750  and  Essberg  $500  to  Schwartz,  who  then  gave  the 
note  to  Essberg.  The  S.^.250  was  then  paid  plaintiff,  and  the 
note  eventually  given  to  Post,  although  when  Post  came  into 
possession  of  the  note  does  not  appear,  nor  is  it  shown  for  what 
reason  Essberg  contributed  the  sum  of  $500  towards  the  amount 
paid  the  plaintiff. 

At  the  close  of  the  plaintiff's  case  and  again  at  the  close  of 
the  whole  case  the  defendant's  attorney  moved  to  dismiss  the 
complaint  upon  the  ground  that  "the  plaintiff  had  failed  to  estab- 
lish a  cause  of  action  and  upon  the  ground  that  by  his  own  admis- 


SCHWARTZMAN    V.    POST  587 

sion  of  the  delivery  and  surrender  of  the  note  by  him  to  the 
defendant,  (the  plaintiff)  extinguished  any  liability  on  that  note. 
*     *     *     My  contention  is  that  the  delivery  of  thai  note  by  the 

plaintiff  to  the  defendant  constituted  a  discharge  and  cancellation 
of  that  note." 

I  am  of  the  opinion  that  the  defendant  Post  is  right  in  this 
contention. 

The  cause  of  action  is  based  wholly  upon  the  note.  Sub- 
division 5  of  section  200  of  the  Negotiable  Instruments  Law  pro- 
vides that  a  negotiable  instrument  is  discharged  "when  the 
principal  debtor  becomes  the  holder  of  the  instrument  at  or  after 
maturity  in  his  own  right." 

The  instrument  in  question  was  a  negotiable  note.  The  term 
'"holder"  is  defined  in  section  2  as  follows :  "  'Holder'  means  the 
payee  or  indorsee  of  a  bill  or  note,  who  is  in  possession  of  it, 
or  the  bearer  thereof,"  and  section  3  contains  the  following  defini- 
tion:  "Person  primarily  liable  on  instrument. — The  person  'pri- 
marily' liable  on  an  instrument  is  the  person  who  by  the  terms 
of  the  instrument,  is  absolutely  required  to  pay  the  same." 

The  words  of  subdivision  5  of  section  200,  "in  his  own 
right,"  merely  exclude  such  a  case  as  that  of  a  maker  acquiring 
the  instrument  in,  purely,  a  representative  capacity. 

The  case  at  bar  comes  exactly  within  these  provisions.  Post 
was  the  maker  of  the  note  and  primarily  liable  thereon  ;  it  was 
surrendered  to  him  and  he  became  the  "holder"  thereof  without 
fraud  or  mistake  in  "his  own  right." 

Prior  to  the  adoption  of  the  Negotiable  Instruments  Law, 
it  has  been  held  that  if  a  note  be  surrendered  by  the  payee  to  the 
maker  the  whole  claim  is  discharged.  (Jaffray  v.  Daz'is,  124  X. 
Y.  164,  170;  Ellsworth  v.  Fogg,  35  Yt.  355:  Kent  v.  Reynolds, 
8  Hun,  559;  Beach  v.  Endrcss,  51  Barb.  570;  affd.  in  Larkin  v. 
Hardenbrook,  90  N.  Y.  333.) 

Whether  the  plaintiff"  can  maintain  an  action  upon  the  origi- 
nal indebtedness  or  upon  the  defendant  Post's  promise  to  pay  the 
balance  due,  the  consideration  therefor  being  the  plaintiff's  sur- 
render of  the  note,  need  not  now  be  determined. 

As  the  foregoing  views  necessitate  a  reversal  of  the  judg- 
ment the  other  alleged  errors  need  not  be  considered. 

Judgment  reversed,  new  trial  ordered,  with  costs  to  the 
appellant  to  abide  the  event. 


5^  Discharge  of  Party  Secondarily  Liable 

DISCHARGE  OF  PARTY  SECONDARILY  LIABLE.  §  122. 

Shutts  v.  Fingar  (1883),  100  N.  Y.  559. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  third  judicial  department,  entered  upon  an  order 
made  July  2,  1883,  which  affirmed  a  judgment  in  favor  of  plain- 
tiff, entered  upon  a  decision  of  the  court  on  trial  without  a  jury. 

This  action  was  brought  against  defendant  as  indorser  of  a 
joint  and  several  promissory  note  dated  March  19,  1866,  for 
$500,  payable  on  demand,  with  interest,  made  by  Jacob  Niver, 
James  Ham  and  Norman  Niver. 

Defendant  became  the  owner  of  the  note  soon  after  its  exe- 
cution ;  he  indorsed  and  transferred  it  in  April,  1868.  Plaintiff 
became  the  owner  in  1869.  Interest  was  regularly  paid  upon  it 
by  Jacob  Niver,  one  of  the  makers,  up  to  April,  1875.  In  1876 
said  Jacob  Niver  died.  In  March,  1877,  plaintiff  presented  the 
note  to  the  administratrix  of  the  estate  of  said  deceased  maker 
and  demanded  payment,  and  on  the  same  day  demanded  payment 
of  the  other  makers,  which  was  refused,  and  defendant  was  noti- 
fied of  such  presentment,  demand  and  non-payment.  No  demand 
was  made  prior  to  that  time.  The  makers  of  the  note  were  not 
copartners. 

John  B.   Whitbeck,  for  appellant. 
Samuel  Edwards,  for  respondent. 

Ruger,  Ch.  J.  We  think  the  court  below  erred  in  applying 
thi'  doctrine  of  Merritt  v.  Todd  (23  N.  Y.  29)  to  the  facts  of 
this  case,  and  that  its  true  solution  is  to  be  found  in  the  rules 
prescribing  the  duties  and  obligations  of  a  creditor  to  his  surety. 
This  court,  in  the  case  of  Parker  v.  Stroud  (98  N.  Y.  379),  fol- 
lowing Merritt  v.  Todd,  expressly  reserved  from  the  effect  of  the 
decision,  the  question  as  to  the  liability  of  the  indorser,  when 
the  maker  had  been  released  from  liability,  by  the  laches  of  the 
holder.  The  doctrine  of  Merritt  v.  Todd  has  been  so  long  acqui- 
esced in,  and  has  been  followed  and  approved  in  so  many  cases, 
that  it  would  be  impolitic  now  to  permit  the  rule  there  laid  down 
to  be  questioned  or  disturbed,  and  it  must,  therefore,  be  consid- 
ered as  settled  law  in  this  State  that  a  note  payable  on  demand, 
with  interest,  is  a  continuing  security,  and  no  cause  of  action 

3  thereon  against  an  indorser  until  after  actual  demand. 

The  defendant  is  here  sued  as  indorser  of  a  demand  note, 
dated  March  19,  1866,  made  by  Jacob  Niver,  James  Ham  and 
Norman   Niver.   payable,   with   interest,   to   Francis  O'Coner  or 


Shutts  V.   fclNGAR  589 

bearer.  The  defendant  afterward  became  the  owner  and  holder 
of  the  note,  and  in  April,  1868,  transferred  it  to  one  Potts,  and 
at  the  request  of  Potts  then  indorsed  it.  Potts  held  the  note 
about  one  year,  when  he  sold  it  to  the  plaintiff,  who  has  ever 
since  remained  its  owner.  Jacob  Niver  paid  interest  on  the  note 
annually  until  March,  1875,  since  when  no  payments  have  been 
made  thereon.  Jacob  Niver  died  in  1876,  and  administrators  of 
his  estate  were  then  appointed.  In  March,  1877,  the  plaintiff, 
after  demanding  payment  of  the  note  of  the  makers,  James  Ham 
and  Norman  Niver,  and  also  of  the  personal  representatives  of 
Jacob  Niver,  and  failing  to  collect  it,  notified  the  defendant  of 
the  fact  and  of  his  intention  to  hold  him  for  its  payment,  and 
thereupon  commenced  this  action  in  June,  1878. 

The  authorities  now  uniformly  hold  that  the  statute  com- 
mences to  run,  upon  a  note  payable  on  demand,  in  favor  of  the 
maker,  at  its  date  (Herrick  v.  Woolverton,  41  N.  Y.  481; 
Wheeler  v.  Warner,  47  id.  519;  Parker  v.  Stroud,  98  id.  379), 
and  that  the  expiration  of  six  years  from  such  date  constitutes 
a  bar  to  an  action  thereon  unless  a  renewal  of  the  cause  of  action 
has  been  effected  by  partial  payments  or  otherwise.  The  makers 
in  this  case  were  not  partners,  and  occupied  no  such  relation  to 
each  other  as  constituted  the  party  making  payment,  in  any  sense, 
the  agent  of  the  other  for  such  purpose,  and  it  necessarily  follows 
that  the  payments  made  by  Jacob  Niver  did  not  renew  the  note 
as  to  the  other  makers,  and  they  were,  therefore,  discharged  from 
liability  thereon,  several  years  prior  to  any  demand  of  payment 
from  them.  ( Van  Keurcn  v.  Parmelee,  2  N.  Y.  524 ;  Schoemaker 
v.  Benedict,  11  id.  176.) 

It  must  be  conceded  upon  settled  principles  of  law,  that 
defendant,  after  payment  of  the  note,  would  have  no  recourse 
for  indemnity  against  any  of  the  parties  thereto,  except  upon 
the  note  itself,  and  if  any  of  such  parties  were  relieved  from 
liability  thereon,  either  by  the  act,  or  laches  of  the  holder,  the 
indorser  lost  his  right  of  action  against  such  party.  The  rule 
which,  upon  payment  of  a  note,  implies  a  promise  by  the  maker 
to  repay  the  indorser  the  amount  paid  by  him,  proceeds  upon 
the  theory  that  the  payment  has  been  made  at  the  request  of  the 
maker,  and  the  cause  of  action  arising  in  favor  of  the  indorser, 
is  based  upon  the  act  of  payment,  and  not  upon  the  note.  (Brand 
on  Suretyship  and  Guaranty,  §§  176.  179.)  Where,  however, 
commercial  paper  is  indorsed  after  its  execution,  to  subserve  the 
interests  of  the  indorser,  no  such  promise  of  repayment  can  be 
implied,   and    the    only   remedy    for   indemnity,    from   the   prior 


590  Discharge  of  Party  Secondarily  Liable 

parties  is  by  resorting  to  the  paper  itself.  (Brandt  on  Suretyship 
an.l  Guaranty,  §180.)  Upon  payment  of  such  obligation,  an 
indorser  is  entitled  to  demand  its  possession  from  the  creditor, 
with  the  right  of  subrogation,  to  all  securities  and  remedies  pos- 
sessed  by  him  against  the  prior  parties  thereon,  unimpaired  by 
any  act  or  laches  of  such  creditor.  (Goodyear  v.  Watson,  14 
Barb.  48]  ;  Clason  v.  Morris,  10  Johns.  524;  Beardsley  v.  Warner. 
6  Wend.  (113;  Daniels  on  Neg.  Inst..  §  1306;  Townsend  v.  Whit- 
ney, 73  X.  Y.  432.) 

The  obligation  which  a  party  assumes  upon  indorsing  a  note 
is,  among  other  things,  to  pay  it,  in  case  the  parties  primarily 
liable  thereon,  after  demand,  neglect  or  refuse  to  do  so.  The 
demand  stipulated  for  is  an  essential  part  of  the  indorsees  con- 
tract, and  the  same  considerations  which  induce  its  requirement, 
also  require  that  it  shall  be  made  upon  an  existing  cause  of  action, 
and  of  parties  who  are  legally  liable  to  respond  in  damages  for 
its  non-performance.  (Daniel  on  Neg.  Inst.  §  1308.)  The 
contract,  except  in  the  case  of  parties  originally  incompetent  to 
contract,  is  predicated  upon  the  assumption  that  there  is  a  legal 
liability  against  parties,  upon  whom  the  demand  is  to  be  made. 
A  demand  upon  a  party  after  he  has  ceased  to  be  liable  would  be 
an  idle  ceremony  and  a  fraud  upon  the  meaning  and  spirit  of  the 
indorser's  contract. 

Except  in  the  case  of  a  partnership  note,  the  demand  must 
also  be  made  upon  each  of  the  several  makers  at  the  maturity 
of  the  note.  (Gates  v.  Beecher,  60  N.  Y.  518).  It  would  be  quite 
absurd  to  claim  that  a  note  could  mature  after  the  parties  thereto 
had  been  discharged  by  the  expiration  of  the  period  of  limitation, 
and  a  demand  upon  such  parties,  after  the  bar  of  the  statute  had 
fallen,  would  not,  therefore,  be  a  compliance  with  the  conditions 
of  the  indorser's  liability.  It  was  held  in  the  case  of  an  indorser 
of  a  note  secured  by  mortgage  upon  real  estate,  the  lien  of  which 
was  lost  by  the  neglect  of  the  creditor  to  record  it,  that  the  surety 
was  discharged,  the  court  saying  that  it  worked  a  change  in  the 
terms  of  the  surety's  undertaking.  "He  only  guarantees  the 
note  as  secured  by  the  mortgage,  and  when  the  mortgage  was 
destroyed  his  contract  was  no  longer  existent."  (Atlanta  Nat. 
Bk.  v.  Douglass,  51  Ga.  205.) 

From  the  foregoing  considerations  it  would  seem  to  follow 
that,  in  order  to  sustain  the  contention  of  the  respondent,  we 
would  he  required  to  hold  that  an  indorser  remains  liable  upon 
a  note,  after  Ins  principals  have  been  discharged  from  their  obli- 
gation  upon   it,  and   that   his  right   of  subrogation   entitles   him 


Shutts  v.  Fingar  591 

only,  to  the  possession  of  a  security  rendered  worthless  by  the 
neglect  of  the  creditor.  Where  such  consequences  are  produced 
by  the  direct  action  of  the  creditor  all  of  the  authorities  concur 
in  holding  that  it  constitutes  a  good  defense  to  the  indorser,  and 
it  is  difficult  to  see  why  the  same  consequences  produced  by  the 
deliberate  laches  and  inaction  of  the  creditor  should  not  lead  to 
the  same  result. 

There  are  cases  holding  that  an  indorser  is  not  discharged  by 
the  delay  of  the  holder  in  prosecuting  the  maker,  at  a  time  when 
the  debt  could  be  collected  from  him,  and  such  remedy  has 
become  fruitless  by  the  maker's  subsequent  insolvency.  (Trimble 
v.  Thome,  16  Johns.  152;  Wells  v.  Mann,  45  X.  Y.  327.)  These 
cases  proceed  upon  the  theory  that,  it  is  the  privilege  and  duty  of 
the  indorser,  after  receiving  notice  of  dishonor,  to  pay  the  note 
and  enforce  it  himself,  if  he  fears  the  impairment  of  the  maker's 
solvency  through  lapse  of  time.  We  have,  however,  been  unable 
to  find  any  case  holding  that  an  indorser  can  be  made  liable  who 
has  had  no  notice  of  dishonor,  or  opportunity  to  take  up  the  note, 
where  the  liability  of  the  maker  has  been  discharged  by  the  laches 
of  the  holder  in  allowing  the  period  of  limitation  to  run  thereon. 

The  responsibility  of  the  indorser  for  the  loss  occasioned  by 
the  bankruptcy  of  a  maker,  after  the  maturity  of  a  note,  is  put 
upon  him  because  of  the  opportunity  which  is  afforded  him  of 
protecting  himself,  and  when  he  is  deprived  of  this  opportunity 
by  the  neglect  of  the  holder,  we  know  of  no  principle  of  law 
which  will  hold  him  liable  for  the  consequences  of  such  a  loss. 

It  is  a  general  rule  that  whatever  discharges  the  maker  or 
acceptor  of  a  bill  or  note  discharges  the  drawer  and  indorser, 
who  are  sureties,  for  the  contract  which  they  undertook  to 
assume  thus  passes  out  of  existence  by  the  act  of  the  beneficiary. 
(Daniel  on  Xeg.  Inst.,  §  1306.)  It  is  also  said  that  "whatever 
discharges  a  prior  indorser  discharges  all  subsequent  indorsers, 
for  the  reason  that  he  stood  between  them  and  the  holder,  and 
on  making  payment  each  one  could  have  had  recourse  against 
him  but  from  which  his  discharge  precludes  them."  The  con- 
tracts of  the  parties  to  a  note  are  said  to  be  like  the  links  of  a 
pendant  chain,  if  the  holder  dissolves  the  first  every  link  falls 
with  it.      (Daniel  on  Xeg.  Inst.,  §  1307.) 

It  was  held  in  the  case  of  Bcardsley  v.  Warner  (supra),  that 
if  the  creditor  does  any  act  impairing  the  surety's  claim  against 
the  maker  it  may  be  shown  in  defense  of  the  surety.  Barhydt 
v.  Ellis  (45  X.  Y.  in)  holds  that  where,  by  the  laches  of  the 
creditor,  the  surety's  means  of  indemnity  are  impaired,  his  liabil- 


592  Discharge  of  Party  Secondarily  Liable 

itv  is  discharged  to  the  extent  of  the  loss  sustained  by  reason 
of  such  neglect.  The  necessary  implication  from  the  rule  thus 
laid  down  would  seem  to  require  his  absolute  discharge  when 
the  responsibility  of  an  individual  liable  for  the  whole  debt  has 
been  lost  by  the  act  of  the  creditor. 

It  is  among  the  fundamental  rules  applicable  to  the  relations 
of  principal  and  surety  that  a  creditor  cannot  vary  or  change  the 
contract  to  the  prejudice  of  a  surety ;  that  he  cannot  extend  the 
time  of  its  performance,  or  release  any  security  held  therefor,  or 
discharge  any  party  therefrom,  without  thereby  releasing  the 
surety  wholly  or  partially  from  his  obligation.  (Daniel  on  Neg. 
Inst.,  §  1308).  In  Stewart  v.  Edcu  (2  Caines,  121),  it  was  held 
where  the  holder  released  one  of  the  makers  of  a  note,  reserving, 
however,  his  liability  to  the  irrdorsers,  that  such  release  did  not 
discharge  the  indorsers.  But  it  was  then  conceded  that  if  the 
release  had  operated  to  wholly  discharge  such  maker  it  would 
have  been  otherwise. 

While  there  are  some  qualifications  of  the  general  rules  above 
referred  to,  there  are  none  that  I  have  been  able  to  find  excusing 
a  creditor,  for  allowing  the  statute  to  run  in  favor  of  the  princi- 
pals, upon  a  note  by  which  they  are  discharged  from  liability. 
The  general  rule  applicable  to  such  laches  seems  to  be  well  stated 
in  the  case  of  Reese  v.  Barrington  (2  Lead.  Cas.  in  Eq.,  part  2, 
p.  373,  cited  in  the  note  to  Fell's  Law  of  Guaranty  and  Suretyship, 
217).  "But  although  the  creditor  is  not  bound  to  take  active 
measures  to  enforce  payment  of  the  debt,  and  may,  therefore, 
stop  short  in  those  which  he  has  taken,  even  when  their  further 
prosecution  would  have  been  successful,  yet  he  is  not  entitled  to 
relinquish  any  hold  which  he  has  actually  acquired  on  the  prop- 
erty or  estate  of  the  principal  and  which  might  have  been  made 
effectual  for  the  payment  of  the  debt.  This  is  the  necessary  result 
of  the  rule  that  a  creditor  shall  not  arbitrarily  shift  the  burden 
of  a  debt  from  the  party  primarily  liable  for  its  payment  «md 
impose  it  on  another  whose  liability  is  secondary." 

We  are,  therefore,  of  the  opinion  that  an  indorser  cannot  be 
held  upon  a  note  payable  on  demand  with  interest,  unless  the 
holder  can  show  a  demand  made  of  the  makers  upon  a  subsisting 
obligation  against  all  of  the  parties  thereto,  and  be  able  to  deliver 
to  such  indorser  upon  payment  by  him  the  note,  unimpaired  as  an 
obligation  by  any  act  or  omission  of  the  holder  occurring  sub- 
sequent to  the  contract  of  indorsement. 

The  judgment  of  the  court  below  should  be  reversed  and  a 
new  trial  ordered,  with  costs  to  abide  event. 

All  concur.  Judgment  reversed. 


Boatmen's  Savings  Bank  v.  Johnson 


593 


Boatmen's  Savings  Bank  v.  Johnson   (i88j),  24  Mo.  .//>/>•  316. 

Appeal  from  the  St.  Louis  Circuit  Court,  Shepakd  II arclay, 
Judge. 

Reversed  and  remanded. 

A.  M.  Gardner,  with  whom  are  Kerr  &  Tittman,  for  the 
appellant. 

George  H.  Shields,  and  Glover  &  S  lie  pie  y,  for  the  respon- 
dents. 

Thompson,  J.,  delivered  the  opinion  of  the  court. 

The  single  question  presented  by  this  record  is  whether  an 
endorser  or  surety  is  released  by  a  composition  agreement 
between  the  holder  of  the  obligation  and  the  maker,  acceptor,  or 
other    principal    debtor,    \yjuch_j^ojiirjo^ 

reserves  every  right  and  remedy  which  the  holder,  or  obligee,  has^ 
against  other  persons.  The  question  must  be  answered  upon 
authority,  and  such  an  agreement  does  not  discharge  the  endorser 
or  surety. 

Two  principles  are  universally  conceded  in  respect  of  the 
rights  of  sureties,  and  are  not  disputed  by  the  parties  to  this 
proceeding :  ( 1 )  That  a  valid  agreement  between  a  creditor  and 
his  principal  debtor,  whereby  the  creditor,  in  consideration  of  the 
payment  of  a  part  of  the  debt,  discharges  the  principal  debtor, 
will,  without  more,  operate  to  discharge  a  surety.  (2)  That  an 
agreement  between  a  creditor  and  his  principal  debtor,  whereby 
the  creditor  agrees,  for  a  consideration,  to  extend  the  time  of 
payment,  will,  without  more,  operate  to  discharge  a  surety.  But_ 
it   is   an   exception   to  the_former   of   these   rules,,  equally   well 


settled,  that  such  an  agreement  will  not  operate  to  discharge  a 
surety  wheTe~the^agreeme"nt  itselfcon  tains  an  express.,  reservation 
of  thcMgrn^lirTgLthe  cTectitor  against  sureties,  or  against  all  per_- 
sons  other  than  the  principal  debtor,  who  mav  be  liable.  (  Ex 
ParTTGTfford,  6  Yes.  805,  807,  per  Lord  Eklon,  L.  C. ;  Hubbcll 
v.  Carpenter,  5  N.  Y.  171  ;  Sohier  v.  Loring,  6  Cush.  537:  Tobey 
v.  Ellis,  114  Mass.  120;  Mueller  v.  Dobschuets,  89  111.  176,  182; 
Stirewalt  v.  Martin,  84  N.  C.  4:  Morse  v.  Huntington.  40  Yt.  488, 
496).  This  principle  was  recognized  by  this  court  in  Broadway 
Saznngs  Bank  v.  Sehmueker  (7  Mo.  App.  171).  It  is  an  equally. 
well  settled  exception  to  the_sgcond  of  these  rules,  thafSTfch  an 
apreement  will  not  operaTe~todischarg_e  a_su J^tv^jyjTer^thejigTee- 
ment  itself  contains  an  express  reservation  of  the  remedies  of  the 


594 


Discharge  of  Party  Secondarily  Liable 


liU^m. 


u  debtor  wlio  may  be  liable^    (nx 

thick,  $iy;T?oitItficc v'T^luobs,  18  Ves.  20,  26;  A'ichols  v.  A" orris, 
3  Barn.  &  Ad.  41  ;  Clagett  v.  Salmon,  5  Gill  &  J.  314;  /J'yAv  v. 
rs,  1  DeG.,  M.  &  G.  408;  Melville  v.  Glendenning,  7  Taunt. 
[26;  Bangs  v.  Strong,  [0  Paige,  1 1  ;  £#»&  v.  Lewis,  8  Pick.  458; 
Blackstone  v.  /////,  10  Pick.  132;  Zjoz/A'  v.  Lineberger,  83  N.  C. 
454;  I 'idle  v.  Hoag,  24  Vt.  46).  Our  supreme  court  made  a 
ruling  which  rests  upon  similar  reasons  in  Rucker  v.  Robinson 
(38  Mo.  154). 

These  two  exceptions  to  the  two  rules  above  stated  rest  upon 
the  same  principle.  They  are  grounded  upon  the  principle  that, 
where  a  contract  expressly  reserves  the  remedy  of  the  creditor 
against  other  persons  (which  includes  sureties),  the  sureties  are 
in  no  way  prejudiced  by  the  agreement.  By  entering  into  such 
an  agreement  the_principal  debtor  impliedly  consents  that  what- 
ever- remedies  his  suretjeshave  against  him  shall  remain  open  to 


Igrn.  They  are,  thereafter,  at  liberty  to  pay  the  debt  at  once,  and 
proceed  immediately  against  their  principal  for  reimbursement. 
An  examination  of  many  decisions  shows  that  the  principles 
which  support  these  two  exceptions  to  the  respective  rules  above 
stated  are  precisely  the  same.  Courts  adopt  the  same  mode  of 
reasoning  in  the  two  cases,  and  cite  interchangeably  decisions 
where  the  agreement  was  for  a  discharge  of  the  principal  debtor, 
and  where  it  was  merely  for  an  extension  of  time  to  him. 

This  principle  has  been  applied  in  a  number  of  cases  where 
the  agreement  was  merely  that  the  creditor  would  not  sue  the 
principal  debtor  within  a  stated  period  of  time.  {Price  v.  Barker, 
4  El.  &  Bl.  760,  778;  C.  C,  30  Eng.  L.  &  Eq.  157;  Kearsley  v. 
Cole,  16  Mees.  &  W.,  128,  135;  Perkins  v.  Gilman,  8  Pick.  229; 
Pullman  v.  Valentine,  11  Pick.  156;  Kenworthy  v.  Sawyer,  125 
Mass.  28;  Hagey  v.  Hill,  75  Pa.  St.  108).  In  these  cases,  where 
there  is  a  reservation  of  the  remedies  of  the  creditor  against  all 
other  persons,  or  against  sureties,  the  reasons  upon  which  the 
courts  refuse  to  discharge  the  sureties,  are  two-fold :  ( 1 )  The 
reason  above  stated,  that  the  agreement  in  no  way  prejudices  the 
surety  as  to  any  remedy  which  he  may  have  against  his  principal. 
(2)  The  additional  reason  that  a  covenant  not  to  sue  can  not  be 
pleaded  in  bar  of  an  action,  in  case  it  is  brought  in  violation  of 
the  covenant,  the  courts  proceeding  upon  the  refinement  that  such 
a  covenant  affords  merely  the  ground  of  an  action  for  damages. 

This  distinction  was  noticed  by  our  supreme  court  in  Rucker  v. 
Robinson  (supra).    Whether  it  is  well,  or  ill,  founded,  we  need 


Boatmen's  Savings  Bank  v.  Johnson  595 

not  now  consider.  Assuming  that  it  is  well  founded,  the  defend- 
ant's position  is  not  helped ;  because,  in  the  cases  where  the 
agreement  was  merely  an  agreement  not  to  sue,  the  courts  have 
universally  rested  their  decisions  as  well  upon  the  reason  that  the 
sureties  were  not  prejudiced  by  the  agreement,  and  hence  not  dis- 
charged, as  upon  the  reason  that  the  agreement  did  not  prevent 
the  creditor  from  suing  the  principal  debtor  at  any  time.  An 
examination  of  numerous  cases  convinces  us  that,  with  one  or 
two  isolated  exceptions,  they  afford  no  ground  for  raising  the  dis- 
tinction which  has  been  attempted  in  this  case,  between  agree- 
ments not  to  sue  and  agreements  to  discharge  the  principal  debtor 
entirely,  reserving  rights  against  all  other  persons.  We  should 
add  that  the  statement  of  Judge  Wagner  in  The  State  ex  rel.  v. 
Matson  (44  Mo.  305,  308),  that  "a  release  of  the  principal  will 
always  discharge  the  surety,"  was  an  obiter  dictum  and  did  not 
correctly  state  the  law.  Nor  is  there  anything  in  the  provisions 
of  section  666,  Revised  Statutes,  to  which  we  have  been  cited, 
which  changes  the  rule  of  the  common  law  on  this  subject. 

We  find,  then,  that  the  exception  to  the  general  rule,  which 
supports  the  plaintiff's  claim  in  this  case,  has  been  thoroughly 
settled  in  England,  and  in  this  country,  by  the  most  authoritative 
courts ;  and  as  we  have  no  jurisdiction  to  change  the  law,  we 
must  hold  that  the  circuit  court  erred  in  the  view  that  the  defend- 
ant was  not  liable,  and  in  non-suiting  the  plaintiff. 

II.  The  decedent,  against  whose  estate  this  claim  was  proved, 
became  liable  as .  an  endorser  for  value  on  a  bill  of  exchange 
drawn  in  favor  of  a  partnership  firm  of  which  he  was  a  member. 
In  view  of  this  fact,  we  have  thought  it  worth  while  to  consider 
whether  the  statute  providing  for  the  discharge  of  a  surety  by  the 
delay  of  the  creditor,  upon  notice  to  sue  the  principal  debtor  (Rev. 
Stat.,  sect.  3896,  ct  seq.),  might  not  operate  to  change,  in  this 
state,  the  rule  of  the  common  law  above  stated.  But  we  find,  on 
examination  of  the  decisions  of  our  supreme  court,  that  it  is  settled 
in  this  state  that  this  statute  has  no  application  to  endorsers,  even 
for  accommodation,  of  commercial  paper,  but  that  it  applies  only 
to  sureties  who  were  originally  liable  as  such  by  the  terms  of  the 
instrument  creating  liability.  ( Clark  v.  Barrett,  19  Mo.  39 ;  Miller 
v.  Mellier,  59  Mo.  388;  Faulkner  v.  Faulkner,  jt,  Mo.  327,  338; 
recognized  in  Friest  v.  Watson,  75  Mo.  310,  316). 

The  judgment  will  be  reversed  and  the  ease  remanded. 
It  is  so  ordered. 

All  the  judges  concur. 


596  Discharge  ok  Party  Secondarily  Liable 

Carroll  v.  Sweet  (1891),  128  N.  Y.  19. 

See  also  §  188. 

Appeal  from  judgment  of  the  General  Term  of  the  Superior 
Court  of  the  city  of  New  York,  entered  upon  an  order  made 
February  9,  1891,  which  affirmed  a  judgment  in  favor  of  plaintiff 
entered  upon  a  verdict  directed  by  the  court,  and  affirmed  an  order 
denying  a  motion  for  a  new  trial. 

This  was  an  action  to  recover  the  balance  of  an  indebtedness 
for  services  rendered.  The  defense  of  payment  by  check  was 
interposed. 

The  facts,  so  far  as  material,  are  stated  in  the  opinion. 

//.  E.  Losey  and  /.  W.  Bartraui,  for  appellant. 
Carter,  Hughes  &  Kellogg,  for  respondent. 

Andrews,  J. — The  indorsement  and  transfer  by  the  defend- 
ant to  the  plaintiff  of  the  check  to  Woodruff  operated  as  pro- 
visional payment  only  of  so  much  of  the  antecedent  debt  owing  by 
the  defendant  to  the  plaintiff.  There  was  no  agreement  that  it 
should  be  taken  in  absolute  satisfaction  of  the  debt  and,  in  the 
absence  of  such  an  agreement,  the  intendment  of  law  is  that  it 
was  conditional  payment  only.  {Hill  v.  Beebe,  13  N.  Y.  566; 
Bradford  v.  Fox,  38  id.  289).  The  debt  remained  until  discharged 
by  payment  of  the  check  or  by  such  dealing  with  the  check  by 
the  plaintiff  as  would,  in  judgment  of  law,  convert  what  was 
originally  a  provisional  payment  into  an  absolute  one.  The  check 
was  dated  August  22,  1887,  and  was  drawn  on  the  Asbury  Park 
National  Bank,  and  was  on  the  same  day  indorsed  and  delivered 
by  the  defendant  to  the  plaintiff  at  the  place  where  the  bank  was 
located. 

The  plaintiff  on  accepting  the  check  assumed,  as  between 
himself  and  the  defendant,  an  obligation  to  present  the  same  to 
the  bank  for  payment  within  the  time  prescribed  by  the  law  mer- 
chant, that  is  to  say,  not  later  than  the  next  day  after  its  date,  and 
if  refused,  to  protest  the  same  and  give  notice  of  non-payment. 
(Smith  v.  lanes,  20  Wend.  T92).  It  was  not  presented  until 
the  thirty-first  of  August,  nine  days  after  it  was  received  by  the 
plaintiff.  The  defendant  was,  by  such  delay,  discharged  from 
liability  as  indorser  of  the  check,  irrespective  of  any  question  of 
loss  or  injury.  Presentment  in  due  time,  as  fixed  by  the  law  mer- 
chant, was  a  condition  upon  performance  of  which  the  liability  of 
the  defendant  as  indorser  depended,  and  this  delay  was  not 
excused  although  the  drawer  of  the  check  had  no  funds,  or  was 


Carroll  v.  Sweet  597 

insolvent,  or  because  presentment  would  have  been  unavailing 
as  a  means  of  procuring  payment.  ( Mohaivk  Bank  v.  Brodcrick, 
10  Wend.  304;  Gough  v.  Stoats,  13  id.  549).  A  different  rule 
obtains  as  between  the  holder  and  drawer  of  a  check.  As  between 
them  presentment  may  be  made  at  an)-  time  and  delay  in  present- 
ment does  not  discharge  the  liability  of  the  drawer  unless  loss  has 
resulted.     (Little  v.  Pheni.v  Bank,  2  Hill,  425). 

The  action  here  is  not  upon  the  indorsement  of  the  defend- 
ant, but  upon  the  original  indebtedness.  If  the  discharge  of  the 
defendant's  liability  as  indorser  discharges  also  his  liability  as 
debtor  for  the  original  debt,  the  judgment  must  on  that  ground 
be  reversed.  In  Hamilton  v.  Cunningham  (2  Brock.  350),  Chief 
Justice  Marshall  considered  the  effect  of  the  neglect  of  the  holder 
of  a  bill  to  give  due  notice  of  dishonor,  whereby  prior  parties 
thereto  were  discharged,  upon  the  liability  of  a  debtor  for  the 
debt  for  which  the  bill  was  drawn.  After  showing  that  the 
authorities  in  which  the  debtor  had, been  held  discharged,  pro- 
ceeded upon  the  theory  that  he  had  sustained  an  actual  loss, 
reached  the  conclusion  that  the  true  principle  is  "that  if  a  bill  be 
received  as  provisional  payment,  the  omission  to  give  due  notice 
of  its  dishonor,  deprives  the  creditor  of  his  action  on  that  bill,  but 
does  not  compel  him  to  take  it  in  absolute  payment  or  deprive  him 
of  his  action  on  the  original  debt  further  than  damage  has  been 
sustained  actually  or  in  legal  supposition  by  the  debtor."  (See 
also  Gallagher  s  Ex'rs.  v.  Roberts,  2  Wash.  C.  C.  191  ;  Fleig  v. 
Sleet,  43  Ohio  St.  53).  I  am  not  sure  that  this  doctrine  is  recon- 
cilable with  expressions  in  the  opinion  of  this  court  in  Smith  v. 
Miller  (43-  N.  Y.  171 ;  S.  C,  52  id.  545).  That  was  an  action  to 
recover  a  debt  for  which  the  defendant  had  drawn  his  draft  on  J. 
K.  Place  &  Co.,  and  forwarded  it  to  the  plaintiff,  the  creditor.  It 
was  presented  on  the  same  day  it  was  received  to  the  drawees,  and 
the  plaintiffs  received  therefor  the  drawee's  check  on  a  bank  and 
surrendered  the  draft.  The  check  was  not  presented  to  the  bank 
until  the  next  day,  when  payment  was  refused,  the  drawee  mean- 
while having  failed.  The  check  would  have  been  paid  if  it  had 
been  presented  on  the  day  it  was  given,  which  might  have  been 
done.  The  plaintiffs  did  not  demand  a  return  of  the  draft,  and  it 
was  not  protested,  nor  was  any  notice  of  non-payment  given  to 
the  drawees.  The  court  rendered  judgment  for  the  defendant  on 
two  grounds,  first,  that  in  the  absence  of  proof  of  demand  and 
refusal  and  notice  to  the  drawees,  according  to  the  usual  course, 
there  could  be  no  recovery  upon  the  draft  or  upon  the  indebted- 
ness upon  which  it  was  given,  and  second,  on  the  ground  of  negli- 


598  Discharge  of  Party  Secondarily  Liable 

gence  in  failing  to  present  the  check  on  the  day  on  which  it  was 

given.    The  last  ground  stated  was  upon  the  facts  a  satisfactory 

for  the  judgment,  and  the  same  principle  was  applied  upon 

similar  facts  in  First  National  Bank  v.  Fourth  National  Bank 

;;  \.  Y.  320). 

In  the  view  we  take  of  the  present  case,  it  is  unnecessary  to 
inquire  whether  the  cases  cited  from  this  and  other  courts  arfe  in 
conflict,  or  if  so  which  class  of  cases  stand  upon  the  better  reason. 
The  court  in  this  case  directed  a  verdict  for  the  plaintiff,  and  in 
this  we  think  there  was  error.  It  cannot  be  doubted  that  if  there 
was  evidence  tending  to  show  that  the  delay  in  presenting  the 
check  to  the  Asbury  Park  Bank  prevented  its  collection,  or  from 
which  the  jury  might  find  that  the  whole,  or  any  part  of  the  debt 
owing  by  the  drawer  of  the  check  to  the  defendant,  for  which  the 
check  was  given,  was  lost  by  reason  of  the  delay  in  the  present- 
ment, or  by  dealings  between  the  plaintiff  and  the  drawer,  in 
respect  to  the  check,  without  the  assent  of  the  defendant,  the 
case  should  have  been  submitted  to  the  jury.  To  the  extent  of 
the  injury,  the  law  would  treat  the  omission  to  make  due  present- 
ment as  tantamount  to  payment. 

The  facts  most  favorable  to  the  defendant  need  to  be  stated. 
Woodruff,  the  maker  of  the  check,  when  the  check  was  given,  was 
conducting  a  hotel  at  Asbury  Park,  and  the  parties  to  the  action 
were  guests  at  his  house.  The  defendant  was  indebted  to  the 
plaintiff  for  dentistry  work,  and  the  former,  who  resided  in  New 
York,  had  loaned  money  to  Woodruff  for  which  the  check  was 
given,  and  on  same  day  defendant  received  the  check  he  delivered 
it  to  the  plaintiff  on  his  debt.  Woodruff  had  an  account  with  the 
Asbury  Park  National  Bank.  On  the  day  of  the  date  of  the  check 
the  bank  charged  to  his  account  a  demand  note  held  by  the  bank 
against  him  for  $500,  but  so  far  as  appears  without  any  notice 
to  Woodruff,  and  this  rendered  his  bank  account  overdrawn. 
Woodruff  was  in  embarrassed  circumstances,  but  was  in  the  daily 
receipt  of  about  $600  from  his  business.  He  used  part  of  the 
receipts  for  current  expenses,  without  depositing  them,  and 
between  the  twenty-second  and  thirty-first  of  August  he  deposited 
$900  in  the  bank  to  the  credit  of  his  account,  and  the  inference 
is  that  it  was  applied  in  part  to  pay  the  $500  note  and  in  part  to 
pay  current  checks  drawn  by  Woodruff.  On  the  twenty-second 
of  Vugust,  the  day  on  which  Woodruff's  check  to  the  defendant 
is  dated,  and  after  it  had  been  indorsed  to  the  plaintiff  by  the 
defendant,  Woodruff,  who  had  been  informed  of  the  transfer, 
requested  the  plaintiff  to  accommodate  him  by  holding  the  check 


Carroll  v.  Sweet  599 

a  few  days,  stating  as  a  reason  that  he  was  pressed  in  the  pay- 
ment of  his  accounts,  to  which  request  the  plaintiff  assented.  He 
asked  the  plaintiff  to  let  him  know  when  he  wished  to  use  the 
check,  as  he  would  then  provide  for  it.  Woodruff  testified  that  he 
had  money  in  his  office  sufficient  to  pay  the  check,  and  would  have 
paid  it  at  any  moment  had  payment  been  insisted  upon ;  that  he 
was  in  the  receipt  of  about  $600  a  day,  and  that  he  redeemed  a 
number  of  other  checks  which  went  to  protest  at  this  time ;  that 
two  or  three  days  after  the  conversation  of  the  twenty-second  of 
August  he  spoke  to  the  plaintiff  again,  and  the  plaintiff  informed 
him  that  he  had  sent  the  check  wrest.  Woodruff  said  to  him  that 
he  regretted  it  very  much,  as  he  wished  to  make  provision  for  the 
check.  The  cashier  of  the  bank  testified  that  there  were  no  funds 
to  meet  the  check,  and  that  it  would  not  have  been  paid  if  it  had 
been  presented  any  time  after  the  twenty-second  of  August.  On 
August  thirty-first  Woodruff,  who  was  behind  in  his  rent,  was  dis- 
possessed from  the  hotel  premises  and  his  business  was  closed  and 
he  then  was  and  now  is  insolvent. 

It  may  be  conceded  that  the  only  obligation  upon  the  plaintiff, 
as  between  him  and  the  defendant,  was  to  present  the  check  at 
the  bank  for  payment  within  the  time  prescribed  by  law.  and  if 
pavment  was  refused,  to  have  the  same  protested  and  notice  of 
non-payment  given  to  the  defendant.  If  he  had  performed  this 
duty  the  defendant  would  have  been  apprised  of  the  default  and 
he  would  have  had  an  opportunity  to  take  such  measures  as  he 
could  to  secure  payment  from  Woodruff.  One  of  the  objects  of 
requiring  prompt  notice  to  be  given  to  indorsers  and  other  parties 
secondarily  liable  on  commercial  paper,  in  case  of  default,  is  that 
they  may  have  an  opportunity  to  secure  themselves.  Checks  are 
supposed  to  be  drawn  against  funds  of  the  drawer  and  prima  facie 
where  it  is  shown  that  the  drawer's  account  was  not  good,  the 
inference  of  injury  from  non-presentment  would  be  rebutted.  But 
where,  as  in  this  case,  it  is  shown  that  the  maker  of  the  check  was 
solicitous  that  it  should  be  paid,  that  he  had  the  means  of  payment 
at  command  and  would  have  provided  for  or  paid  the  check  if  pay- 
ment had  been  insisted  upon ;  that  the  holder  was  apprised  of  the 
facts  and  for  the  accommodation  of  the  maker  refrained  from 
presenting  the  check,  and  presentation  was  delayed  until  open 
insolvency  of  the  maker  occurred  and  he  became,  by  the  change  of 
circumstances,  unable  to  provide  for  the  check,  it  cannot  be  said, 
we  think,  that  there  was  no  legal  evidence  of  injury  to  be  sub- 
mitted to  the  jury.  The  plaintiff,  instead  of  taking  the  usual 
course,  undertook  to  deal  with  the  maker  of  the  check  in  disregard 


600  Discharge  of  Party  Secondarily  Liable 

of  his  primary  obligation  to  the  defendant.  It  was  for  the  jury 
to  pass  upon  the  circumstances  and  to  find  whether  the  conduct 
of  the  plaintiff  imposed  a  pecuniary  injury  upon  the  defendant. 
To  the  extent  of  such  injury  the  law  adjudges  that  the  debt  of  the 
plaintiff  has  been  paid. 

The  judgment  below  should  be  reversed  and  a  new  trial 
granted,  with  costs  to  abide  the  event. 

All  concur.  Judgment  reversed. 

Qxj^   **|  <°  f  •  ° 
/>  Fall  kill  Xat.  Bank  v.  Sleight  ct  al.  (1896),  1  A  pp.  Div.  (N.  Y.) 
189,  37  N.  Y.,  Supp.  155. 

Appeal  by  the  defendants,  Alexander  W.  Sleight  and  Frances 
S.  Titus,  from  a  judgment  of  the  Supreme  Court  in  favor  of  the 
plaintiff,  entered  in  the  office  of  the  clerk  of  the  county  of 
Dutchess  on  the  4th  day  of  April,  1895,  upon  the  decision  of  the 
court  rendered  after  a  trial  at  the  Dutchess  Special  Term,  espe- 
cially from  that  part  of  said  judgment  which  adjudges  that  they 
are  or  may  be  liable  for  any  deficiency  that  may  arise  from  the 
sale  of  the  mortgaged  premises  described  in  the  complaint. 

L.  B.  Sackett,  for  the  appellants. 
Herrick  &  Losey,  for  the  respondent. 

Brown,  P.  J. — This  action  was  brought  to  foreclose  a  mort- 
gage upon  real  estate  given  by  one  Henry  P.  Titus  to  the  appel- 
lants to  secure  them  as  sureties  upon  three  several  promissory 
notes  made  by  said  Titus  and  held  by  the  plaintiff,  and  which 
mortgage  was,  by  said  appellants,  assigned  to  the  plaintiff. 

The  appellants  appeal  from  that  part  of  the  judgment  which 
adjudged  them  to  be  liable  for  such  deficiency  on  the  debt  as  might 
exist  after  a  sale  of  the  mortgaged  premises.  The  defense  pleaded 
was  that  the  plaintiff  had,  without  the  appellants'  consent, 
extended  the  time  of  payment  of  the  notes  in  suit  for  thirty  days 
from  the  date  of  a  certain  chattel  mortgage  executed  by  said 
Henry  P.  Titus  and  delivered  to  the  plaintiff,  and  that  such  agree- 
ment discharged  the  appellants  from  their  liability  upon  the  notes 
in  suit. 

^T^4  The  mortgage  sought  to  be  foreclosed  was  dated  January  1 1 . 

:*^x>x    fc^o.  l89>  and  was  £iven  to  secure  the  payment  of  three  notes,  one  of 
_^_  which  bore  date  March  26,  1889,  and  the  other  two  April  3,  1889. 
i  vr"^)  all  being  payable  on  demand,  with  interest. 

On  the  date  aforesaid  the  plaintiff  was  the  holder  of  said 
three  notes,  upon  which  there  was  then  unpaid  $36,600,  and  also 


Fallkill  National  Bank  v.  Sleight  et  al.  G01 

of  an  overude  note  made  by  said  Titus  for  $1800,  dated  July  25, 
1894,  and  made  payable  four  months  after  date. 

On  January  11,  1895,  said  Titus  executed  and  delivered  to 
the  plaintiff  a  chattel  mortgage,  which,  after  reciting  his  indebted- 
ness as  aforesaid,  provided  as  follows : 

"Now  for  the  securing  payment  of  the  said  first  above-men- 
tioned note"  (being  the  $1,800  note)  "or  any  renewal  or  renewals 
thereof,  and  in  consideration  of  agreement  to  renew  the  same  for 
thirty  days,  and  also  for  securing  payment  of  said  last  three  above-- 
mentioned  notes,  after  said  first  above-mentioned  note  and  any 
renewal  or  renewals  thereof  shall  be  first  paid  or  provided  for,  I 
do  hereby  sell,  assign,  etc.  etc."  *  *  *  "This  mortgage  is  on 
the  express  condition  that  if  the  said  Henry  P.  Titus  *  *  * 
shall  pay  to  the  said  Fallkill  National  Bank  of  Poughkeepsie 
eighteen  hundred  dollars,  as  conditioned  in  said  first  above-men- 
tioned note,  or  any  renewal  or  renewals  thereof,  and  shall  also  pay 
the  sum  of  thirty-six  thousand  six  hundred  dollars,  as  conditioned 
in  the  said  last  three  above-mentioned  notes  *  *  *  then 
this  transfer  to  be  void  and  of  no  effect." 

The  argument  of  the  counsel  for  the  appellants  is  that  the 
intent  and  purpose  of  the  agreement  contained  in  the  chattel  mort- 
gage was  to  postpone  the  payment  of  the  three  demand  notes  until 
thirty  days  after  the  date  of  the  renewal  of  the  $1,800  note. 

This  contention  cannot  be  sustained.    The  terms  of  the  chattel  t^>J^  "^^ 
mortgage  fixed  the  order  in  which  that  security  should  be  appliedfrVv'aa*lA~  Vrv- 
"to  the  payment  of  the  respective  notes.    It  did  not  purport  to  alter  j^^-Ji 
the  terms  of  the  demand  notes  nor  to  postpone  their  payment  nntil^^^^^ 
themajTintv  of  the  renewal  of  the  $1,800  note.     The  bank  was  ijj^j^^ 
left  entirely  free  to  sue  upon  the  demand  notes^or  to  avail  itself  of  j^*^w-A  Wo. 
the  security  ot  the  real  estate  mortgage  tor  their  payment,  and  in  ^J^-^    ^ 
fact  this  action  was  commenced  before  the  expiration  of  thirty    V*0*^^^^- 
days  from  the  date  of  the  chattel  mortgage.     Had  the  appellants 
paid  the  original  debt  to  the  plaintiff  there  was  nothing  in  the 
terms  of  the  chattel  mortgage  that  would  have  prevented  their  . 
immediately  suing  their  principal  therefor.    The  chattel  mortgage  ,^-W^X* 
was  merely  a  new  and  additional  collateral  security  for  the  pay-    ^feSStf]^ 
mentj)f  the  three  demand  notes.    And  the  rule  is  well  settled  that    jS-SSSc!!^ 
taking  a  new  security  from  the_debtor  without  agreeing  to  give.. _-Ha^0^£^j 
him  time  does  not  discharge"  a  suretvT     (Wood  v.  Robinson,  22    y*^*>  -w«-*r 
ST.  Y.  564;  Gary  v.  White,  52  id.  138).  ,  ^o^^^S 

The  fact  that  the  collateral  may  not  be  enforcible  until  a_  -w^ 

definite  time  in  the  future  does  not  operate  to  extend  the  time 
of  payment  of  the  principal  debt  or  suspend  the  right  to  sue  upon 


bOli  Discharge  ok  Party  Secondarily  Liable 

the  original  security.     (United  States  v.  Hodge,  6  How.  [U.  S.] 

279). 

In  all  cases  where  it  has  been  held  that  the  time  of  payment 
of  the  original  debt  has  been  extended  by  the  receipt  of  collateral 
security,  there  has  been  an  express  or  implied  agreement  to  that 

effect. 

Such  were  the  cases  of  Place  v.  Mcllvain  (38  N.  Y.  96)  and 
Hubbard  v.  Cumcy  (64  id.  457),  cited  by  the  appellants. 

In  Kane  v.  Cortesy  (100  N.  Y.  132)  the  only  question  dis- 
cussed was  whether  the  testimony  conclusively  established  an 
agreement  to  extend  the  time  of  payment  of  the  original  debt. 

There  is  no  question  in  the  case  before  us  but  that  the  time  for 
the  payment  of  the  $1,800  note  was  extended  for  thirty  days,  and 
that  the  note  was  to  be  paid  out  of  the  proceeds  of  the  sale  of  the 
chattels  mortgaged  before  any  of  such  proceeds  could  be  applied 
to  the  payment  of  the  three  demand  notes ;  but  the  testimony  does 
not  show  that  payment  of  the  demand  notes  was  to  be  postponed 
for  any  definite  time,  and  the  court's  finding  to  that  effect  has 
ample  support  in  the  evidence. 

The  judgment,  so  far  as  appealed  from,  must  be  affirmed, 
with  costs. 

All  concurred. 

Judgment,  so  far  as  appealed  from,  affirmed,  with  costs. 

Ilagey  v.  Hill  {1874),  75  Pa.  St.  108. 

Before  Agnew,  C.  J.,  Mercur  and  Gordon,  JJ.  Sharswood, 
J.,  at  Nisi  Prius. 

Error  to  the  District  Court  of  Philadelphia. 

This  was  an  action  of  assumpsit,  brought,  November  26th, 
1870,  by  George  W.  Hill  against  John  Hagey  as  endorser  of  the 
following  note : 
"$10,000.  Philadelphia,  November  4th,  1867. 

"Eight  months  after  date  we  promise  to  pay  to  order  of  John 
Hagey,  Ten  Thousand  Dollars,  without  defalcation,  for  value 
received.  E.  Matlack  &  Son." 

(Endorsed)     "John  Hagey." 

On  the  trial  before  Hare,  P.  J.,  the  plaintiff  gave  the  note 
in  evidence  and  rested. 

The  defendant  then  gave  in  evidence  this  receipt : — 

"Received,  July  30th,  1868,  of  E.  Matlack  &  Son,  a  policy  of 


Hagey  v.  Hill  603 

insurance  in  my  favor,  dated  this  day,  issued  by  the  American 
Life  Insurance  Company,  on  the  life  of  Ellwood  Matlack,  for 
the  sum  of  ten  thousand  dollars.  In  consideration  of  which  I 
hereby  agree  never  to  prosecute  or  demand  payment  of  a  certain 
promissory  note  drawn  by  E.  Matlack  &  Son,  endorsed  by  John 
Hagey,  and  also  guaranteed  by  J.  E.  Lewars,  due  and  protested 
July  7th,  1868,  for  the  sum  of  ten  thousand  dollars;  provided, 
however,  that  the  premium  on  the  said  policy  of  insurance  is 
promptly  paid  by  the  said  Matlack,  or  others.  And  provided 
further,  that  the  interest  on  said  sum  of  ten  thousand  dollars  is 
promptly  paid  to  me,  or  my  order,  whenever  the  same  becomes 
due.  The  first  year's  interest  to  be  paid  before  the  first  day  of 
May,  1869,  and  the  second  year  on  or  before  July  7th,  1870,  and 
annually  thereafter.  Provided  further,  that  no  delay  of  demand 
shall  interfere  with  any  claim  I  may  have  upon  the  endorsers  of 
said  note.     This  agreement  void  if  not  complied  with  as  above. 

"George  W.  Hill,     [seal.]" 

E.  Matlack,  one  of  the  drawers  of  the  note,  testified  that  he 
had  paid  one  year's  interest  on  the  note,  and  the  premium  for 
one  year  on  the  policy  of  insurance. 

There  was  evidence  also  that  the  cashier  of  the  bank  where 
the  note  was  whilst  plaintiff  was  absent  in  Europe,  took,  with  the 
consent  of  the  defendant,  a  deed  from  Matlack  for  some  land, 
and 'agreed  to  release  all  claim  against  the  drawer's  stock  of 
goods,  &c,  and  that  the  plaintiff  refused  to  ratify  the  arrange- 
ment, and  it  was  rescinded  without  the  consent  of  the  defendant. 

The  defendant  requested  the  court  to  charge  the  jury : — 

1.  That  as  the  payment  of  the  premium  on  the  policy  of 
insurance,  by  the  makers  of  the  note,  disabled  the  holder  of  the 
note  from  suing  thereon  for  one  year,  the  endorser  was  dis- 
charged, unless  the  jury  believe  the  endorser  consented  to  the 
same. 

2.  That  unless  the  endorser  was  informed  of  the  delivery  of 
the  policy  to  the  plaintiff,  it  was  his  (the  plaintiff's)  duty  to 
inform  the  defendant  of  any  default  made  in  the  payment  of  the 
premium,  and  his  failure  so  to  do  discharged  the  defendant. 

3.  That  if  the  jury  believe  that  the  holder  of  the  note 
released  the  security  held  by  him,  by  reason  of  the  conveyance  of 
April  15th,  1868,  without  the  consent  of  the  endorser,  then  the 
defendant  was  discharged. 

The  court  refused  the  request  and  instructed  the  jury  to  find 
for  the  plaintiff. 

The  verdict  was  for  the  plaintiff  for  $11,350. 


A»-*<KaA*i/j  ° 


604  Discharge  of  Party  Secondarily  Liable 

The  defendant  took  a  writ  and  assigned  for  error  the  refusal 
of  his  points  and  the  instruction  of  the  court. 
D.  W.  Sellers,  for  plaintiff  in  error. 
//.  T.  King,  for  defendant  in  error. 
The  opinion  of  the  court  was  delivered  by 

Mercur,  J. — This  suit  was  against  the  endorser  of  a  promis- 
sory note.  The  first  assignment  of  error  raises  the  question  as  to 
whether  he  was  discharged  by  reason  of  an  agreement  between 
the  holder  and  the  maker,  after  the  note  became  due,  extending 
the  time  of  payment.  It  is  a  well-recognized  rule  that  an  exten- 
\.  sion  of  time  bv  a  valid  agreement  between  the  creditor  and  the 


principal,  will,  as  a  general  rule,  discharge  the  endorser.  The 
reasons  therefore  are  these :  The  liability  of  the  endorser  to  the 
holder  is  secondary  and  contingent.  On  his  paying  the  note,  he 
has  a  right  of  action  against  the  principal,  or  of  subrogation  to  the 
rights  of  the  creditor.  Hence,  if  time  has  been  given,  or  an  act 
has  been  done  by  the  creditor  which  prejudices  these  equities  in 
the  endorser,  he  will  be  discharged. 

It  has,  however,  been  repeatedly  held  in  England  and  in  this 
country,  that  a  discharge  by  the  creditor  of  the  principal  debtor 
will  not  discharge  the  surety,  if  there  be  an  agreement  between 
the  creditor  and  the  principal  that  the  surety  shall  not  be  thereby 
discharged :  Byles  on  Bills,  316;  Ex  parte  Glendcnning,  1  Buck 
B.  C.  517;  Ex  parte  Carstairs,  id.  560;  Ex  parte  Gilford,  6  Vesey, 
Jr.,  805;  Boultbce  v.  Stubbs,  18  Vesey,  Jr.,  20;  Nichols  et  al.  v. 
Norris,  ^  Barn.  &  Ad.  41  (23  E.  C.  L.  R.)  ;  Kearsley  v.  Cole,  16 
Mees.  &  W'els.  127;  Boaler  et  al.  v.  Mayor  et  al.  19  Com.  B.  N.  S. 
70  (115  E.  C.  L.  R.).  It  was  said,  however,  by  Lord  Chancellor 
Eldon,  in  Ex  parte  Glendenning,  vide  supra,  "Ever  since  Mr. 
Richard  Buck's  case,  the  law  has  been  clearly  settled,  and  is  now 
perfectly  understood,  that  unless  the  creditor  reserves  his  rem- 
edies,  he  discharges  the  surety  by  compounding  with  the  principal, 
and  the  reservation  must  be  upon  the  face  of  the  instrument  by 
which  the  parties  make  the  compromise;  for  evidence  cannot  be 
admitted  to  vary  or  explain  the  effect  of  the  instrument."  It  was 
held  in  Wyke  v.  Rogers,  1  De  G.,  Mac.  &  G.  408,  that  parol  evi- 
dence might  be  given  to  show  that  an  agreement,  which  would  by 
itself  operate  to  release  the  surety,  was  not  to  have  that  effect. 

The  ground  upon  which  an  agreement  to  give  time  to  the 
maker,  made  by  the  holder  without  the  consent  of  the  endorsers, 
upon  a  valid  consideration,  is  held  to  be  a  discharge  of  the  endors- 
ers, is  soldy  this,  that  the  holder  thereby  impliedly  stipulates  not 
to  pursue  the  endorsers,  or  to  seek  satisfaction  from  them  in  the 


c 


Hagey  v.  Hill  G05 

intermediate  period.  It  can  never  apply  to  any  case  where  a  con- 
trary stipulation  exists  between  the  parties.  Hence,  if  the  agree- 
ment for*  delay  expressly  saves  and  reserves  the  rights  of  the 
holder  in  the  intermediate  time  against  the  endorsers,  it  will  not 
discharge  the  latter.  In  such  case  the  very  ground  of  the  objec- 
tion is  removed,  for  their  rights  are  not  postponed  against  the 
maker,  if  they  should  take  up  the  note :  Story  on  Prom.  Notes, 
sect.  416.  The  same  rule  is  recognized  in  Viele  v.  Hoag,  24  Vt. 
46;  Morse  v.  Huntington,  40  id.  488;  Clagett  et  al.  v.  Salmon,  5 
Gill  &  Johns.  315.  The  whole  course  of  Chancellor  Walworth's 
reasoning  in  Bangs  v.  Strong,  10  Paige's  Chan.  Rep.  11,  leads  to 
the  same  result. 

The  endorser  was  not  a  party  to  the  contract  between  the")  X/w**-**"^ 
holder  and  the  maker.    .H.e~was  not  thereby  precluded  from  paying  fr^-*^^-^** 
the  note  at  any  moment.     Having  paid  it  he  would  have  had  an     llT"'^*0^1^*" 
immediate  right  of  action  against  the  maker.     None  of  his  rights    \  ^\*^  J^lT 
were  in  the  slightest  degree  impaired. 

Neither  the  search  of  counsel  nor  our  own  examination  has 
resulted  in  finding  that  the  precise  point  has  ever  been  decided 
by  this  court.  When  not  in  conflict  with  our  own  precedents,  it  is 
desirable  that  we  conform  to  what  seems  to  be  the  general  rule  of 
the  commercial  world.  The  case  of  Manufacturers'  Bank  v.  Bank 
of  Pennsylvania,  J  W.  &  S.  335,  has  been  cited  in  opposition  to 
this  rule.  Such  is  not  the  case.  The  point  there  decided  is 
merely  that  an  endorser  may  be  discharged  by  the  holder  giving 
time  to  the  maker,  after  judgment  has  been  obtained  against  him ; 
that  the  creditor  must  no  more  impair  the  rights  of  the  endorser 
after  he  has  obtained  judgment  against  the  maker  than  before. 

The  written  instrument  executed  by  the  plaintiff  below,  byl**-*-***?**^ 
which  he  agreed  with  the  maker  to  extend  the  time  of  payment, ;> 'Tt^-r^'^  ■ 
expressly  declares,  "Provided  further.  That  no  delay  of  demand  _^T[|    -     f* 


shall  interfere  with  any  claim  I  may  have  upon  the  endorsers  of 
said  note."    The  case  is  thus  clearly  brought  within  the  rule,  and ' 
we  hold  that  the  extension  of  time  to  the  maker  in  a  manner  which 
preserved  all  the  rights  of  the  endorser,  did  not  discharge  the 
latter. 

The  second  and  third  assignments  have  no  merit.  The  accept- 
ance of  the  conveyance  of  land  in  the  absence  of  the  plaintiff 
below,  by  one  acting  without  authority,  and  so  known  by  the 
defendant  below,  and  repudiated  by  the  holder  of  the  note,  cannot 
prejudice  his  rights  against  the  endorser. 

The  learned  judge  was  correct  in  instructing  the  jury  to  find 
in  favor  of  the  plaintiff  below.  Judgment  affirmed. 


"■****-      VvA^-^AV 


-YjEr~»-     r&-e~'^~-- 


60b       Rights  of  Party  Paying  Instrument 

RIGHTS  OF  PARTY  PAYING  INSTRUMENT.  §  I23. 

French  v.  Jan-is  (i860),  20  Conn.  347. 

Assumpsit,  brought  against  the  defendant  as  indorser  of  three 
notes,  made  by  one  Rowland,  payable  to  the  order  of  the  defend- 
ant, one  for  $2,275,  dated  March  23,  1857,  one  for  $2,337,  dated 
April  20,  1857,  and  one  for  $2,510,  dated  May  30,  1857,  all  pay- 
able at  six  months  from  date.  The  defendant  pleaded  the  general 
issue,  with  notice,  which  was  closed  to  the  court. 

The  notes  were  made  by  Rowland  and  indorsed  by  the 
defendant  for  the  accommodation  of  a  joint  stock  corporation  in 
New  York,  and  were  by  the  corporation  delivered  to  one  Elliott, 
a  broker  in  New  York,  for  him  to  send  to  Connecticut  and  get 
discounted  for  the  benefit  of  the  corporation ;  for  which  service, 
if  the  discount  was  procured,  he  was  to  receive  a  commission. 
One  Baldwin,  who  resided  in  New  Haven  in  this  state,  was  inter- 
ested with  Elliott  in  his  business  and  in  the  profits  to  be  derived 
from  the  transaction.  Before  the  notes  matured  and  while  they 
were  in  Connecticut,  Baldwin  himself  purchased  them  for  value, 
and  afterwards,  before  they  became  due,  indorsed  ^them  and  sold 
them  to  one  Townsend,  who  was  the  owner  and  holder  of  them 
when  they  severally  matured.  When  the  notes  fell  due  they  were 
severally  presented  to  the  maker  for  payment  and  protested  for 
non-payment,  and  notice  of  protest  was  duly  given  to  the  defend- 
ant and  to  Baldwin.  Baldwin  thereupon  paid  the  amount  of  the 
notes  to  Townsend,  took  them  up,  and  became  again  the  owner  of 
them. 

The  defendant  claimed  on  the  trial  that  Baldwin  had  after 
this  continued  to  be  the  holder  of  the  notes,  and  was  such  when 
the  suit  was  brought,  and  that  the  plaintiff,  French,  had  no  such 
title  to  the  notes  as  would  enable  him  to  maintain  a  suit  upon 
them  in  his  own  name.  The  plaintiff  denied  this,  and  claimed 
to  be  the  legal  holder  of  the  notes,  and  on  this  point  the  court 
found  the  following  facts. 

Baldwin  having  taken  up  the  notes,  and  being  anxious  to 
secure  their  payment,  entered  into  an  agreement  with  French,  in 
good  faith,  before  the  commencement  of  the  suit,  by  which 
French,  who  was  a  man  of  energy  and  skill,  was  to  investigate 
the  affairs  of  Jarvis,  and  trace  out  the  transmutations  of  the 
property  formerly  held  by  him,  for  the  purpose  of  discovering, 
if  possible,  property  which  might  by  legal  proceedings  be  appro- 
priated to  the  payment  of  the  notes,  and  was  diligently  to  exer- 


French  v.  Jar  vis  607 

eise  his  skill  and  tact  in  this  business,  and  make  such  journeys, 
expend  such  money,  time  and  labor,  employ  such  legal  counsel, 
and  institute  such  suits  and  legal  proceedings  as,  in  his  judgment, 
might  be  necessary;  for  all  which  services  French  was  to  receive, 
in  addition  to  the  sum  of  $150  advanced  to  him  by  Baldwin,  a 
reasonable  compensation  out  of  the  ultimate  avails  of  the  notes; 
French  to  have  the  power  to  sue  upon  the  notes  in  his  own  name, 
and  to  control  all  the  proceedings  to  be  instituted  upon  them,  and 
to  personally  collect  and  receive  the  avails  thereof,  paying  over 
to  Baldwin  the  surplus  of  the  avails,  if  any,  that  should  remain 
after  compensating  himself.     When   the   agreement   was   made 
both  Baldwin  and  French  contemplated  the  rendering  of  long  and 
difficult  services  by  the  latter  under  the  agreement.     In  pursuance 
of  the  agreement,  before  the  commencement  of  the  suit,  Baldwin 
erased  his  own  indorsement  from  the  notes,  and  delivered  them, 
indorsd  in  blank  by  Jarvis,  to  French,  with  intent  to  carry  the 
agreement  into  effect,  and  to  authorize  and  enable  French  to  deal 
with  the  notes  according  to  the  agreement.    And  the  court  found 
that  Baldwin  did  in  fact  convey  to  French  the  legal  title  to  the 
notes,  unless  the  law  was  imperatively  so  that  a  legal  title  to  the 
notes  could  not  be  conveyed  in  the  manner  or  for  the  purposes 
aforesaid.    The  court  further  found  that  French  took  the  notes, 
pursuant  to  the  agreement,  and  had  ever  since  been  the  actual 
holder  thereof,  and  that  he  in  good  faith  commenced  the  perform- 
ance of  his  part  of  the  agreement,  and  was  still  engaged  in  such 
performance,  and  commenced  and  continued  the  suit  in  pursuance 
thereof,  with  the  knowledge  and  assent  of  Baldwin,  and  that  it 
was  not  certain  whether  or  not  he  would  ever  realize  from  the 
avails  of  the  notes  more  than  enough  to  compensate  him  for  his 
services  and  expenditures  under  the  agreement,  though  it  was 
confidently  expected  by  the  parties  that  much  more  than  enough 
would  be  received  by  him. 

It  was  not  claimed  by  the  plaintiff  that  there  had  been  any 
demand  on  the  maker  of  the  notes  for  payment  of  either  of  them, 
or  anv  notice  to  the  defendant  of  the  dishonor  thereof,  by  the 
plaintiff  or  by  any  one,  subsequent  to  the  demand  and  notice 
originally  made  when  the  notes  severally  became  due  and  were 
protested  for  non-payment. 

The  defendant  also  claimed  that,  after  the  dishonor  of  the 
notes,  they  could  not  be  transferred  to  French,  so  as  to  vest  a 
legal  title  in  him  and  enable  him  to  maintain  a  suit  upon  them 
in  his  own  name.  A  question  was  also  made  with  regard  to  the 
usurious  character  of  the  notes,  which  need  not  be  more  fully 


00b  Rights  of  Party  Paying  Instrument 

stated.  The  court  found  the  issue  for  the  plaintiff,  and  the 
defendant  moved  for  a  new  trial  for  error  in  the  rulings  of  the 
court  upon  the  points  stated. 

Dutton,  in  support  of  motion. 

R.  I.  Ingersoll  and  Harrison,  contra. 

Storrs,  C.  J. — It  being  found  by  the  court  below  that  the 
notes  in  question  in  this  suit  were  not,  as  claimed  by  the  defend- 
ant on  the  trial,  sold  in  the  state  of  New  York,  by  the  corporation 
which  held  them,  at  a  greater  rate  of  discount  than  the  legal  rate 
of  interest  in  that  state,  there  is  clearly  no  ground  for  the  first 
point  made  by  the  defendant,  which  is  founded  on  such  a  sale. 
The  finding  is  conclusive  on  that  question  of  fact,  and  is  not  the 
subject  of  revision  before  us. 

The  defendant  next  claims  that  Baldwin  was  always  the  legal 
holder  of  the  notes,  from  the  time  when  he  took  them  up  from 
Townsend  down  to  the  trial  of  this  case,  and  therefore  that  the 
plaintiff,  never  having  any  legal  title  to  them,  could  not  maintain 
this  suit.  That  the  plaintiff  must  have  such  a  title  when  the  suit 
was  brought,  and  continue  to  hold  it  to  the  time  of  the  trial,  is 
well  settled.  It  not  being  claimed  that  he  ever  parted  with  such 
a  title  if  he  acquired  it  from  Baldwin,  the  question  on  this  point  is, 
whether  he  ever  so  acquired  it ;  and  that  he  did,  we  entertain  no 
doubt.  If  the  circumstances  found  by  the  court  below,  preceding 
its  final  finding  as  to  the  conveyance  of  the  legal  title  of  the  notes 
to  the  plaintiff,  are  to  be  regarded  as  furnishing  evidence  merely, 
from  which  conclusions  of  fact  are  to  be  drawn,  and  this  court 
had  the  power  to  draw  such  conclusions,  we  should  not  probably 
hesitate  to  infer  from  those  circumstances  such  a  conveyance. 
But  we  have  no  such  power,  and  can  only  decide  on  facts  found 
and  presented  to  us.  It  is,  however,  by  no  means  clear  that,  inde- 
pendent of  such  final  finding,  enough  does  not  appear  to  require 
us,  as  matter  of  law,  to  pronounce  that  such  a  title  was  conveyed. 
But  it  is  not  necessary  to  decide  that  question,  because  we  are 
clearly  of  the  opinion  that  the  finding  of  the  court  on  the  fact  of 
such  a  conveyance,  notwithstanding  its  hypothetical  form,  is  in 
legal  effect  absolute  and  unqualified ;  for  the  court  finds  that 
P.aldwin  did  in  fact  convey  to  the  plaintiff  the  legal  title  to  the 
notes,  unless  the  law  be  imperatively  so  that  a  legal  title  to  them 
could  not  be  conveyed  in  the  manner  and  for  the  purposes  before 
mentioned ;  and  we  are  of  the  opinion  that,  under  the  circum- 
stances stated,  the  law  interposed  no  objection  to  such  a  convey- 
ance.    It  was  no  objection  to  the  transfer  of  these   notes  by 


French  v.  Jarvis  609 

Townsend  to  Baldwin,  or  by  the  latter  to  the  plaintiff,  that  they  ^  cj^^.  .  «~c  - 
had  heen  dishonored ;  for  no  principle  is  better  settled  than  that  a^a/ola.  ^ 
negotiable  notes  are  assignable  as  well  after  as  before  they  have  ^c)t^_  y^-J^> 
become  due,  and  continue  negotiable  until  they  are  paid  by  the  .jc^^^^JJ^ 
party  primarily  liable  on  them,  subject  to  4ke  qualifications,  which*   \^^^  ^X^' 
however  have  no  application  to  the  present  case,  that  if  trans- 
ferred after  due  they  are  affected  by  the  equities  existing  with 
regard  to  them  between  the  original  parties  and  that  an  indorser 
who  has  taken  them  up  can  not  transfer  them  so  as  to  render  sub- 
sequent indorsers  liable.     (Chitty  on  Bills  [9  Am.  Ed. J,  241,  et 
scq.;  Story  on  Prom.  Notes,  §§  178,  180). 

These  notes,  therefore,  continuing  to  be  negotiable,  notwith- 
standing their  dishonor,  the  only  question  on  this  part  of  the  case 
is,  whether  the  payment  to  Townsend  by  Baldwin  of  their  amount 
and  his  receiving  them  back,  wzts-f  negotiation  or  transfer  of  the 
notes  to   Baldwin,  or  an  extinguishment  of  them,  so  that  they 
could  not  afterwards  be  enforced  against  any  of  the  prior  parties ; 
for,  if  the  transaction  was  of  the  former  character,  they  were 
plainly  transferable  from  Baldwin  to  the  plaintiff^Qn  this  point 
we  are  clearly  of  the  opinion  that  the  effect  of  fliaTtr^isactiort  was^o^J^^A 
not  a' payment  of  the  notes  which  operated  as  an  extinguishment  ^ir^^^ 
of  them  ;  that  it  amounted  only  to  a  repurchase  of  them  bv  Bald-  ~fe~*w*JA>-k.  ** 
win,  which  remitted  to  him,  and  reinvested  him  with,  his  original  °-  ^.-^^^t 
rights,  and  placed  him,  in  regard  to  the  parties  to  the  notes  prior  w**  *~  ***> 
to  himself,  in  the  same  situation  in  which  he  was  before  his  trans-  y^^^x  1 
fer  to  Townsend;  and  that  he,  by  such  purchase,  acquired  the    ****-  -~<3*->. 
same  rights  as  to  such  prior  parties  as  any  other  purchaser  from 
Townsend  would  be  entitled  to.     Baldwin,  having  indorsed  the 
notes  to  Townsend  and  become  liable  to  him  on  that  indorsement, 
might  pay  him  their  amount  and  receive  them  back  from  him,  and 
thus  redeem  himself  from  such  liability,  and  place  himself  in  a 
situation   to   obtain    the    reimbursement   to   which   he    would   be 
entitled  from  the  prior  parties  to  the  notes ;  and  this  only  was  the 
legal  effect  of  that  transaction.     Under  a  misapprehension  of  the 
point  decided  in  Beck  v.  Robley,  1  H.  Bla.,  89,  note,  the  Supreme 
Court  of  Massachusetts,  in  the  case  of  Blake  v.  Sewall,  3  Mass., 
556,  and  Boylston  v.  Greene,  8  Mass..  465,  took  a  different  view 
of  the  effect  of  taking  up  a  note   from   the  holder  by  a  prior 
indorser;  but  in  the  case  of  Guild  v.  Eager,  17  Mass.,  615,  these 
cases,  on  a  more  careful  consideration,  were  overruled  by  that 
court,  in  accordance  with  the  more  recent  case  of  Callow  v.  Law- 
rence, 2  Man.  &  Sel..  95.  and  the  views  we  have  adopted  fully 
established. 


610  Rights  of  Party   Payinc  Instrument 

In  respect  to  the  object  or  consideration  of  the  transfer  from 
Baldwin  to  the  plaintiff,  it  is  a  matter  with  which  the  defendant 
has  no  concern  although  we  perceive  nothing  in  the  transaction 
of  a  peculiar  or  exceptionable  character. 

These  principles  furnish  a  complete  answer  to  the  claim 
urged  by  the  defendant,  that  the  liabilities  of  the  maker  of  these 
notes  and  of  the  defendant  could  not  be  legally  transferred  to 
the  plaintiff,  on  the  ground  that  the  promise  of  the  former  had 
been  broken  and  the  latter  had  been  charged  as  indorser.  The 
legal  title  of  these  notes  being  established  in  the  plaintiff,  the 
well-established  principle,  already  stated,  that  a  negotiable  note 
continues  to  be  negotiable  as  well  after  as  before  it  falls  due, 
shows  conclusively  that  this  claim  of  the  defendant,  and  the 
reason  on  which  it  is  founded,  are  without  force.  For  what  con- 
stitutes the  negotiability  of  such  an  instrument  but  the  power  of 
the  holder  to  assign  his  rights  in  it  to  another?  But  what  sort 
of  negotiability  would  it  be,  especially  in  the  case  of  the  notes 
now  in  question,  if  this  claim  of  the  defendant  were  sustained? 
The  legal  title  to  the  notes  would  pass  to  the  plaintiff,  but  no 
rights  whatever  which  were  attached  to  them.  Baldwin  would 
not  be  liable  by  reason  of  his  being  a  party  to  the  instruments, 
for  his  name  does  not  appear  on  them ;  and  as  no  one  but  the 
plaintiff  has  the  legal  title  to  them,  we  do  not  see  how  any  other 
person  than  himself  could  resort  to  the  defendant,  the  prior 
indorser,  or  why,  therefore,  the  latter  would  not  be  altogether 
discharged  from  his  liability.  On  the  ground,  moreover,  upon 
which  this  objection  is  urged,  that  the  notes  being  dishonored 
no  liability  on  them  could  afterwards  be  assigned,  Baldwin  him- 
self, after  he  had  taken  up  the  notes  from  Townsend,  could  not 
have  enforced  them  against  the  defendant,  because  he  held  them 
only  as  a  purchaser  after  they  had  been  dishonored.  But  it  is 
unnecessary  to  pursue  the  reasoning  on  this  point.  The  author- 
ities, and  those  of  the  highest  character,  are  decisive  of  it,  and 
repel  the  defendant's  claim.  It  is  sufficient  only  to  refer  to  them. 
Williams  v.  Matthews,  3  Cowen,  252;  Guild  v.  Eager,  17  Mass. 
615;  Callozv  v.  Lawrence,  3  Mau.  &  Sel.  95. 

As  to  the  remaining  point  suggested  in  the  defendant's 
brief,  although  not  pressed  on  the  argument,  that  it  was  incum- 
bent on  the  plaintiff  to  demand  payment  of  the  notes  of  the 
defendant,  and  to  give  him  notice  of  their  non-payment,  and  to 
which  Bishop  v.  Dexter,  2  Conn.  419,  was  cited, — it  is  sufficient 
to  say  that  the  case  has  no  application  to  the  present,  because 
there  the  note  was  not  indorsed  by  the  payee  until  after  it  fell 


Gardner  v.  Maynard  611 

due;  whereas,  in  this  case,  it  had  been  negotiated  before  due  by-jU*.  V^-*£  n* 
the  defendant,  and  he  had  regularly  received  notice  of  its  non-Wx>^W 
payment  by  the  holder  on  its  dishonor ;  and  that  notice,  it  is  we11^^^  F\ 
settled,  enured  to  the  benefit  of  any  subsequent  holder.  Story  on  G  *~~t~  ^ 
Prom.  Notes,  §§  302,  303,  334,  452,  and  cases  cited. 

A  new  trial  is  not  advised. 

In  this  opinion  the  other  judges  concurred. 

New  trial  not  advised. 


Gardner  v.  Maynard  (1863),  7  Allen,  456. 

Contract  against  the  acceptor  of  a  draft  for  $1000,  drawn 
by  Sanford  C.  Gardner,  in  favor  of  J.  &  C.  Levy  &  Co.,  upon 
the  defendant.      The  draft  was  duly  indorsed  and  accepted. 

At  the  trial  in  the  superior  court,  before  Allen,  C.  J.,  it 
appeared  that  the  draft  was  protested  for  non-payment,  and 
returned  to  Levy  &  Co.,  and  was  afterwards  returned  to  the 
drawer,  who  assigned  it  by  bill  of  sale  to  the  plaintiff,  with  the 
indorsement  of  Levy  &  Co.  remaining  uncancelled.  A  witness 
testified  that  he  saw  the  draft  indorsed  by  one  of  the  firm  of 
Levy  &  Co.,  and  did  not  see  any  money  paid  at  that  time. 

Upon  these  facts,  the  chief  justice  directed  a  verdict  for  the 
defendant,  which  was  accordingly  rendered ;  and  the  plaintiff 
alleged  exceptions. 

/.   II.  Butler,  for  the  plaintiff. 
/.  S.  Abbott,  for  the  defendant. 

M  etc  alp,  J.  These  exceptions  must  be  overruled  and  judg- 
ment rendered  on  the  verdict  for  the  defendant,  upon  the  author- 
ity of  Beck  y.-Robley,  1  H.  Bl.  89,  n.  That  case  and  this  are 
alike  in  all  particulars.  In  both,  the  bill  was  made  payable,  not 
to  the  drawer's  own  order,  but  to  a  third  party  who  indorsed  it. 
was  accepted  by  the  drawee,  but  afterwards  was  dishonored  by 
his  refusing  to  pay  it,  and  was  taken  up  from  the  indorser  by 
the  drawer,  with  the  indorser's  name  remaining  uncancelled. 
In  that  case  it  was  decided  that  the  bill  was  not  negotiable,  and 
that  the  drawer  could  not  reissue  it.  And  that  decision  has 
never  been  overruled  or  denied,  but  is  cited  as  established  law 
in  all  the  books  that  treat  of  bills  of  exchange.  See  1  Steph. 
N.  P.  863:  Story  on  Bills,  §223:  Guild  v.  Eager,  17  Mass.  615. 
Opinion  of  Patteson,  J.,  in  Williams  v.  James,  15  Ad.  &  El. 
(N.  S.)    505.     The  doctrine   of  that  decision   is.   that  a_bjn_of_ 


612  Rights  of  Party  Paving  Instrument 

rvrhange  cannot  be  indorsed  or  negotiated,  after  it  has  once 
„^><n  ~*5  been  pald.-tfsuclTiridorsemcnt  or  negotiation  would  make  any 
^^y^-*-.  <***-  oTrmrparTies  liable,  who  would  otherwise  be  discharged.  Bay  ley 
^^  U^-^-  on  JJills,  (6th  ed.)    166,  16/;  Lhit.  Bills,   (12th  Amer.  ed.)   254. 

*^  -t^^*   tv     -55-     As  tlie  first  niclorser  of  a  bil1  is  liable  to  ever>'  subsequent 
'  \j^  fide  holder,  although  the  bill  be  fraudulently  circulated,  it 

\^V-(vw  W*   follows  that  if  he  leaves  his  name  thereon,  after  he  is  entitled 

W  u*^5^         to  a  discharge,  he  exposes  himself  to  liability   to  such   holder. 

<x^i~   */y^^-  Therefore  the  bill  is  held  not  to  be  negotiable,  in  such  case. 

U—P  r^-Acfc,  This  rule  of  law  applies'pnly  to  cases  in  which  the  negotiation 

of  a  bill  by  the  drawer,  after  he  has  taken  it  up  on  its  being 
returned  to  him  dishonored,  would  expose  a  discharged  party  to 
a  new  liability.  See  Callow  v.  Lawrence,  3  M.  &  S.  95  ;  Hubbard 
v.  Jackson,  4  Bing.  390;  Bayley,  Chit,  and  17  Mass.  ubi  supra; 
Mead  v.  Small,  2  Greenl.  207. 

Exceptions  overruled. 

Blenn  v.  Lyford  (1879),  70  Me.  149. 

Assumpsit,  by  indorsee  against  the  maker  of  a  promissory 
note. 

D.  D.  Stewart,  for  the  plaintiff. 
Josiah  Crosby,  for  the  defendant. 

Appleton,  C.  J.  This  .is  an  action  of  assumpsit  on  the  fol- 
lowing note : 

"St.  Albans,  Me.,  Dec.  2,  1871. 

"Seven  months  from  date,  value  received,'  I  promise  to  pay 
M.  E.  Rice,  or  order,  three  hundred  dollars,  at  any  bank  in 
Bangor.  H.  H.  Lyford." 

The  note  was  indorsed  in  blank  "M.  E.  Rice."  The  following 
words  were  also  on  the  back  of  the  note,  erased  with  ink  but 
legible :   "Holden  without  demand  or  notice.    M.  E.  Rice." 

Granting  the  presumption  that  the  plaintiff  is  a  bona  fide 
holder  for  value  of  the  note  before  maturity,  that  presumption 
may  be  overcome  by  proof. 

It  appears  from  the  testimony  that  the  note  was  indorsed  to 
one  Richardson,  for  value,  in  the  April  following  its  date;  that  it 
was  not  paid  at  maturity,  and  that  about  three  months  after  its 
dishonor  he  delivered  it  to  Rice,  the  payee. 

The  plaintiff  then  received  the  note  in  suit,  when  overdue. 
The  note  remaining  unpaid  after  maturity  was  dishonored,  and  it 


Bl.KNN    V.    LYfORD  013 

was  the  duty  oi  the  indorsee  10  make  inquiries  concerning  it.  If 
he  takes  it,  though  he  gave  a  full  consideration  for  it,  he  doe-  -■ 
on  tlie  credit  of  the  indorser.  He  holds  the  note  subject  to  all 
equities  with  which  it  mav  he  incumbered. 

As  the  plaintiff  is  the  indorsee  of  a  dishonored  note,  jt  was 
o  n.ipctent  for  the  defendant  to  show  that  it  was  an  accommoda- 
tion note,  and  that  if  had  been  paid  by  the  party  for  whose 
accommodation  it  was  given. 

That  the  note  was  for  the  accommodation  of  the  payee  is 
abundantly  shown  by  his  receipt  of  the  date  of  February  22,  1872, 
as  well  as  by  the  testimony  offered  and  excluded. 

The  note  being  for  the  accommodation  of  Rice,  it  was  his 
duty  to  pay  it.  The  note  being  found  after  dishonor  in  the  hands 
of  the  one  bound  to  pay  it,  the  presumption  is  that  he  paid  it. 
2  Par.  N.  &  B.  220.  It  was  competent  to  show  that  in  fact  he 
paid  it,  but  the  answer  to  an  inquiry  whether  the  note  was  paid 
by  Rice  was  excluded.    This  was  erroneous.  V-jcjl    js>JL*> 

Assuming  the  note  to  have  been  paid  bv  Rice,  it  was  the  T^^^e^cw>J0 
sameasif  paid  bv  the  rnaEer.     It  was_paid_by__the  parfy~whose    ^,^^3^  \, 
dutv  it  was  to  pav  it.      The  purpose  for  which  it  was/given  has~c)v>Ajn*v  <w. 
been  accomplished.     The  negotiability  of  a  note  ceases  alfer  its'v^  >  **  *~- 
payment  by  tfte  party  who  shnniri  rightfully  pay  it.    "Now  it  can-',  j^^T^; 
riot  be  denied,"  says  Denman,  C.  J.,  in  Lazarus  v.  Cowie,  43  E.     -j- 
C.  L.  819,  "that  if  a  bill  be  paid  when  due  by  the  person  ultimately 
liable  on  it,  it  has  done  its  work,  and  is  no  longer  a  negotiable 
instrument.     *     *     *     But  the  drawer  of  an  accommodation  bill 
is  in  the  same  situation  as  the  acceptor  of  a  bill  for  value ;  he  is 
the  person  ultimately  liable,  and  his  payment  discharges  the  bill 
altogether."  ^^^  V>A^ 

,    Rice,  when  he  took  up  the  note  in  suit,  had  no  right  of  actionlo^e^^o-jjaaJ 
against  the  maker,  and  could  not  transfer  to  the  plaintiff  any]  W^ 
HetteT right  after  maturity  than  he  had.     Edwd.  B.  &  N.  564*.  ■'<V* 
Fish  v.  French,  15  Gray,  520;  Tucker  v.  Smith,  4  Maine.  415.   ^ 

In  the  cases  cited  by  the  plaintiff  there  are  most  important 
differences  from  the  one  under  consideration.  In  Bank  v.  Croie. 
60  X.  Y.  85,  the  plaintiffs  were  the  indorsees  of  the  note  for 
value  and  before  maturity,  and  were  consequently  to  be  pro- 
tected. In  Thompson  v.  Shepherd,  \2  Met.  31  t .  it  was  held  that 
the  indorsee  of  a  note,  who  receives  it  for  value  from  the  second 
indorser.  after  it  has  been  dishonored  by  the  maker,  can  recover 
thereon  against  the  maker,  although  he  knew  when  he  received  it 
that  as  between  the  maker  and  first  indorser  it  was  an  accommo- 
dation note.    But  this  is  upon  the  principle  affirmed  by  the  court 

*\      feA/^i^^aV^p  (     KW^<W_     -tfW  ^vvjl.   W    •*" ^^ 

^v>-^_^3^v^   KeJ^jL.   -v*^3u_   *»  o~— *-J^ f(^-, 


(314  Renunciation  by  Holder 

in  Woodman  v.  Churchill,  52  Maine,  58,  that  where  the  first 
indorsee  of  a  promissory  note  acquires  a  right  of  action  against 
the  maker,  by  being  a  bona  fide  purchaser,  without  notice  and 
before  maturity,  lie  can  transfer  a  good  title  as  well  after  as  before 
the  note  becomes  due.  Exceptions  sustained. 

Action  to  stand  for  trial. 
Walton,  Barrows,  Dan  forth  and  Libbey,  J  J.,  concurred. 

RENUNCIATION    BY   HOLDER.  §  I24. 

In  re  George  (1890),  44  Ch.  Div.  627. 

Adjourned  summons. 

T.  W.  George,  by  his  will,  dated  the  6th  of  July,  1887, 
bequeathed  to  his  niece,  Mrs.  Margaret  Anne  Francis,  the  plain- 
tiff, the  sum  of  £6000,  and  by  a  codicil,  also  dated  the  6th  of  July, 
after  referring  to  this  bequest  and  to  the  fact  that  he  had  lent 
the  plaintiff  a  sum  of  £2000,  declared,  that  if  at  his  death  the 
said  sum  of  £2000  or  any  part  thereof,  or  any  interest  thereon, 
should  be  owing  from  the  said  M.  A.  Francis,  "then  and  in  such 
case  all  moneys  due  to  me  as  aforesaid  shall  be  deducted  from  the 
said  legacy  of  £6000  which  I  have  by  my  said  will  bequeathed 
to  or  for  the  benefit  of  the  said  M.  A.  Francis  and  her  children, 
and  I  direct  that  in  such  case  the  said  legacy  shall  be  reduced 
accordingly  in  satisfaction  of  the  moneys  due  to  me  as  aforesaid." 

The  sum  of  £2000,  referred  to  by  the  testator,  was  lent  by 
him  to  the  plaintiff  in  September,  1886,  when  the  plaintiff  exe- 
cuted and  gave  to  him  a  promissory  note  in  the  following  terms : 
"On  demand  I  promise  to  pay  to  Mr.  T.  W.  George  or  his  order 
the  sum  of  two  thousand  pounds,  together  with  the  interest  there- 
on after  the  rate  of  four  pounds  per  centum  per  annum  from  the; 
date  hereof  for  value  received." 

Interest  was  paid  on  this  note  up  to  the  6th  of  March,  1889 
On  the  30th  of  August,  1889.  the  testator  died.  Some  two  of 
three  hours  before  his  death,  the  testator  directed  the  promissory 
note  to  be  brought  to  him  that  he  might  destroy  it ;  search  was 
made,  but  the  note  could  not  be  found.  The  testator  then  declared 
to  the  plaintiff,  in  the  presence  of  two  other  persons,  that  he 
wished  to  give  the  £2000  to  her,  and  to  forgive  her  the  debt.. 
The  nurse  was  then  sent  for,  when  the  testator  told  her  that  he- 
had  lent  the  plaintiff  £2000.  and  that  he  wished  to  forgive  the 
debt,  and  that  he  ought  to  have  destroyed  the  note,  but  it  could 


In  re  George  615 

not  be  found  for  that  purpose;  he  then  made  the  nurse  promise 
that  she  would  see  the  note  destroyed,  and  that  she  would  testify 
that  it  was  his  wish  that  it  should  be  destroyed  as  soon  as  found, 
and  he  told  her  that  she  had  better  write  this  down.  The  nurse 
then  and  there  wrote  down  on  the  back  of  a  letter  she  had  in  her 
pocket  a  memorandum  as  follows:  "30th  August,  1889.  It  is  by 
Air.  George's  dying  wish  that  the  cheque  (sic)  for  £2000  money 
lent  to  Mrs.  Francis  be  destroyed  as  soon  as  found.  Mr.  George 
is  perfectly  conscious  and  in  his  sound  mind.  (Signed,  Nurse  T.)." 
This  memorandum  the  nurse  stated  in  evidence  was,  with  the 
exception  of  the  last  sentence,  written  at  the  instance  of  the  testa- 
tor. The  story  told  by  the  nurse  was  corroborated  by  another 
member  of  the  family  and  otherwise.  After  the  testator's  death 
the  note  was  found  by  the  executors ;  but  under  the  circumstances 
they  did  not  consider  themselves  justified  in  paying  the  plaintiff 
the  legacy  of  £6000  in  full  without  the  direction  of  the  Court,  and 
accordingly  the  plaintiff  took  out  an  originating  summons  against 
the  executors  to  determine  the  question  whether  the  promissory 
note  had  been  duly  cancelled. 

Romcr,  O.  C.,  and  Upjohn,  for  the  plaintiff". 
Byrne,  Q.  C,  and  Dunning,  for  the  defendants. 

(  liiTTV,  J.  (after  stating  the  will  and  codicil  and  the  promis- 
sory, note,  and  that  the  question  was  whether  the  note  was  dis- 
charged in  the  lifetime  of  the  testator,  continued)  : 

The  argument  for  the  plaintiff  is,  that  this  being  a  promissory 
note,  at  common  law  the  debt  would  be  waived,  and  that  the 
Rills  of  Exchange  Act,  1882,  s.  62,  sub-s.  1,  has  only  made  a  lim- 
ited alteration  in  the  law,  and  does  not  apply  to  a  waiver  of  a  bill 
or  note  before  its  maturity,  but  only  "at  or  after  its  maturity"  ; 
and  seeing  that  the  present  is  a  note  payable  on  demand  with 
interest,  it  is  said  it  was  not  "at  maturity"  when  the  testator 
died,  and  that,  therefore,  the  case  is  not  affected  by  the  62nd 
section.  [After  reading  sect.  62,  sub-sect.  1,  his  Lordship  con- 
tinued ]  : 

The  first  point,  therefore,  is,  when  is  a  note  payable  on 
demand  "at  maturity"?  That  question,  though  not  exactly  in  this 
form,  has  been  often  considered.  Of  the  various  cases  which  have 
been  referred  to  in  argument,  I  will  take  one  only — Norton  v. 
Ellam,  2  M.  &  W.  461.  In  that  case  there  was  a  note  payable  with 
interest  on  demand,  and  the  question  was  from  what  time  the 
Statute  of  Limitations  began  to  run.  Baron  Parke,  in  giving 
judgment,  says,  2  M.  &  W.  404:   "I  entertain  no  doubt  at  all  on 


616  Renunciation  bv  Holder 

this  point.  It  is  the  same  as  the  case  of  money  lent  payable  upon 
request,  with  interest,  where  no  demand  is  necessary  before  bring- 
ing the  action.  There  is  no  obligation  in  law  to  give  any  notice  at 
all:  if  you  choose  to  make  it  part  of  the  contract  that  notice  shall 
be  given,  you  may  do  so.  The  debt  which  constitutes  the  cause  of 
action  arises  instantly  on  the  loan."  The  note  I  have  before  me 
was  for  money  lent.  "Where  money  is  lent,  simply,  it  is  not 
denied  that  the  statute  begins  to  run  from  the  time  of  lending. 
Then  is  there  any  difference  where  it  is  payable  with  interest? 
It  is  quite  clear  that  a  promissory  note,  payable  on  demand,  is  a 
present  debt,  and  is  payable  without  any  demand,  and  the  statute 
begins  to  run  from  the  date  of  it.  Then  the  stipulation  for  com- 
pensation in  the  shape  of  interest  makes  no  difference,  except  that 
thereby  the  debt  is  continually  increasing  de  die  in  diem."  I 
mention  this  authority  alone,  though  there  are  many  previous  deci- 
sions to  the  same  effect,  because  it  appears  to  me  to  be  decisive 
on  the  point  that  was  argued  with  reference  to  the  62nd  section, 
viz.,  that  this  note  was  not  at  maturity  when  the  testator  died. 

Then  comes  the  question,  whether  there  is  a  "renunciation" 
"in  writing"  within  sect.  62,  sub-sect.  1.  I  entertain  no  doubt 
of  the  integrity  and  trustworthiness  of  the  witnesses,  and  I  enter- 
tain 'no  doubt  also  that  it  was  the  testator's  intention  to  forgive, 
or  discharge  this  note  in  favour  of  the  plaintiff.  I  am  quite  satis- 
fied with  the  evidence  on  this  point.  Sect.  62,  sub-sect.  1,  says 
the  renunciation  must  be  in  writing,  unless  the  bill  is  delivered  up 
to  the  "acceptor,"  and,  changing  the  language  to  suit  the  present 
case,  that  would  be,  unless  the  note  is  delivered  up  to  the  maker. 
The  statute  contains  provisions  for  the  cancellations  of  bills  of 
evchange,  and,  therefore,  of  promissory  notes  also.  So  that  it 
is  quite  clear,  that  if  this  note  had  been  in  the  testator's  possession 
at  the  time,  he  would  have  had  it  destroyed :  upon  that  point  I 
entertain  no  doubt.  I  have,  however,  to  deal  with  the  statute, 
which  is  not  confined,  of  course,  to  cases  such  as  this,  but  is  a 
statute  as  to  bills  of  exchange,  and  has  a  wide  operation  among 
mercantile  men  ;  and  I  feel  that  I  must  be  on  my  guard  not  to 
allow  any  sympathy  I  may  have  with  the  plaintiff  on  the  facts  of 
the  case  in  any  way  to  influence  my  judgment  in  construing  this 
section;  because  I  might,  if  I  did  give  way  on  such  a  ground  as 
that,  be  inflicting  considerable  injury  upon  merchants  and  others. 

Now.  it  is  plain  that  what  must  be  in  writing  is  an  absolute 
and  unconditional  renunciation  of  rights.  It  is  not  necessary  to 
put  those  words  in;  but  that  must  be  the  effect  of  the  document. 
Then  the  document  is  not  to  be  a  note  or  memorandum  of  the 


In  re  George 


6i; 


renunciation  or  of  an  intention  to  do  it.  but  it  must  be  itself  the 
record  of  the  renunciation.  I  am  not  called  upon  to  say  whether 
the  words,  "the  renunciation  must  be  in  writing,"  involves  the 
signature ;  and  I  do  not  propose  to  say  anything  which  would 
tend  to  shew  it  was  my  opinion  that  the  renunciation  in  writing- 
need  not  be  signed.  I  see  great  danger  in  holding  that  the  signa- 
ture is  not  required.  I  leave  the  point  wholly  undetermined.  This 
section,  as  has  been  properly  pointed  out,  does  not,  in  terms,  say 
that  the  writing  must  be  signed  by  the  holder  of  the  bill  or  note  ; 
and  it  does  not,  in  terms,  say  that  the  writing  may  be  signed  by 
anybody  on  his  behalf — that  is,  by  an  agent;  and,  no  doubt,  there 
are  other  sections  where  signature  is  spoken  of,  and  it  must  be 
the  signature  of  the  person  himself,  or  there  may  be  cases  where 
it  is  signed  by  the  agent,  and  provisions  are  made  to  that  effect 
in  the  statute. 

But  now  I  take  the  document  which  I  have  before  me,  and 
compare  it  with  the  statute.  The  facts  are  these.  [His  Lordship 
then  stated  the  facts  as  to  the  writing  of  the  memorandum  by  the 
nurse,  and  continued]  :  That  memorandum  was,  no  doubt,  meant 
to  be  evidence  of  his  intention.  The  document  is  signed  by  the 
nurse,  and  it  was  an  authority  to  those  concerned,  if  the  note  had 
been  found,  to  destroy  it  in  his  lifetime. 

But  is  that  an  absolute  and  unconditional  renunciation  in 
writing  of  the  testator's  rights  on  the  note?  Mr.  Romer's  argu- 
ment (to  put  it  shortly)  was  this,  that  it  is  final  because  it  is 
stated  it  is  Mr.  George's  dying  wish,  and  that  it  is  immediate 
because  the  note  was  to  be  destroyed  as  soon  as  found.  But  the 
real  question,  I  think,  is  this :  is  the  direction  to  destroy  the  note 
as  soon  as  found  an  absolute  and  unconditional  renunciation  of 
the  rights  on  the  note  ?  I  put  the  proposition  in  that  way ;  for  I 
think  it  is  the  fairest  way  to  state  it  in  favour  of  the  plaintiff. 
I  am  now  assuming  that  this  is  a  writing  by  the  testator — an 
assumption  that  I  am  making  in  favour  of  the  plaintiff. 

The  pertinent  question  is,  could  not  the  testator,  after  this- 
paper  had  been  signed  by  the  nurse,  have  gone  to  the  bank,  if 
be  recovered,  where  he  supposed  the  note  to  be,  to  get  it.  or  if  jt 
was  found  afterwards  and  brought  to  the  testator,  could  he  not 
say,  "I  have  changed  my  mind"?  T  think  he  could.  T  think  I 
am  bound  in  point  of  law  to  say  that  he  could. 

Having  examined  the  case  with  all  the  care  that  I  think  could 
be  given  to  it,  I  am  unable  to  come  to  the  conclusion  that  this 
was  an  absolute  and  unconditional  renunciation  in  writing  such 
as  is  required  by  the  statute. 


618  ,  Renunciation  by  Holder 

\  L«wJfe  »-/  a/,  r.  /Jew  (.rp05),  p.?  JV.  Y.  Supp.  891,  102  App.  Div. 

5-y- 

Appeal  from  judgment  on  report  of  referee. 

Action  by  George  Leask  and  others,  as  executors  of  the 
estate  of  Oliver  W.  Buckingham,  deceased,  against  J.  Harvie 
Dew.  From  a  judgment  in  favor  of  plaintiffs,  defendant  appeals. 
Affirmed. 

This  action  was  brought  to  recover  upon  a  promissory  note 
given  by  the  defendant  to  the  plaintiffs'  testator.  The  note  was 
dated  November  23,  1901,  whereby  the  defendant  promised  to 
pay  to  the  order  of  Oliver  W.  Buckingham,  the  testator,  one  year 
after  date,  the  sum  of  $5,000,  with  interest  at  6  per  cent.  Oliver 
W.  Buckingham  died  testate  on  the  31st  day  of  October,  1903, 
and  upon  the  probate  of  his  will  the  plaintiff's  duly  qualified  as  his 
executors.  The  answer  averred,  for  separate  and  affirmative 
defenses,  that  the  testator  had  canceled  the  said  note  by  an  instru- 
ment in  writing,  and  that  after  the  testator's  death  this  defendant 
presented  a  claim  against  the  estate  of  said  deceased  for  $31,500. 
which  was  disputed  by  the  executors ;  that  the  matter  in  contro- 
versy was  finally  submitted  to  a  referee,  pursuant  to  the  provisions 
of  section  2718  of  the  Code  of  Civil  Procedure,  and  upon  the 
trial  of  said  action  the  defendants  therein  offered  said  note  in 
evidence  by  way  of  offset  or  counterclaim  against  the  claim  of  this 
defendant,  who  was  plaintiff  therein ;  and  that  said  action  was 
pending  and  undetermined  at  the  time  of  the  joinder  of  issue. 
Upon  the  trial  of  this  action  the  plaintiffs  proved  the  making  of 
the  note,  the  non-payment  of  which  was  admitted,  except  as 
stated  in  the  answer,  and  rested.  The  defendant  then  offered 
proof  that  after  testator's  death  the  note  in  question  was  found 
among  his  papers,  inclosed  in  an  envelope  together  with  the  fol- 
lowing paper,  all  in  the  handwriting  of  the  testator,  except  the 
signature  of  the  witness : 

"New  York,  Nov.  25,  1901. 
"To  my  executors. 

"Gentlemen:  The  enclosed  note  I  wish  to  be  cancelled  in  case 
of  my  death,  and  if  the  law  does  not  allow  it  T  wish  you  to  notify 
my  heirs  that  it  is  my  wish  and  orders. 

"Truly  yours, 
"Witness  :  Oliver  W.  Buckingham." 

"Frank  W.  Woglom." 


Leask.  et  al.  v.  Dew  619 

The  defendant's  wife  testified  that  she  was  present  at  a  time 
when  the  testator  and  her  husband  were-  talking  about  the  note  in 
question,  and  that  her  husband  said  to  the  testator  that  he  objected 
to  debt,  and  wished  to  pay  the  note,  but  Mr.  Buckingham  objected 
to  receiving  it,  and  said  that  he  did  not  intend  to  take  it,  and 
wished  it  appropriated  by  Dr.  Dew  to  fix  the  house,  and  he  posi- 
tively refused  to  take  it.  The  counsel  for  the  defendant  asked 
the  plaintiffs  to  concede  that  the  note  in  question  was  offered 
as  an  offset  upon  the  trial  of  the  claim  of  Dew  against  the  execu- 
tors, whereupon  the  attorney  for  the  plaintiffs  said  :  "I  concede 
that,  prior  to  the  commencement  of  this  suit  on  the  note  for 
$5,000,  Dr.  Dew,  the  defendant,  presented  a  claim  against  the 
estate  of  Mr.  Buckingham  amounting  to  $31,500.  which,  pursuant 
to  the  provisions  of  the  Code,  had  been  referred  to  Hon.  Henry 
E.  Howland,  as  referee,  and  that  on  the  trial  of  said  action  before 
the  said  referee  the  executors  introduced  the  same  note  which 
forms  the  subject  of  this  action,  and  put  the  same  in  evidence,  but 
did  not  assert  the  same  as  a  counterclaim."  The  defendant's 
counsel  then  said :  "I  claim  that  the  note  could  be  used  in  evi- 
dence for  no  other  purpose  than  as  an  offset  or  counterclaim." 
This  is  substantially  all  that  was  shown  in  regard  to  introducing 
the  note  in  evidence  as  an  offset  in  the  other  action.  Both  actions 
were  tried  before  the  same  referee,  who  reported  for  the  plaintiffs 
.in  the  action  at  bar,  and  to  his  findings  of  fact  and  conclusions  of 
law  the  defendant  duly  excepted.  In  the  case  of  Dr.  Dew's  claim 
against  the  estate  of  Oliver  W.  Buckingham,  the  referee  rendered 
a  brief  opinion,  entitled  in  that  case  only,  which  closes  as  follows : 
"The  note  for  $5,000,  dated  November  23,  1901,  made  to  the 
decedent  by  the  claimant,  is  a  valid  and  outstanding  obligation 
( Dimon  v.  Keery,  54  App.  Div.  318,  66  N.  Y.  Supp.  817),  and  the 
attempted  renunciation  was  ineffectual."  The  referee  wrote  no 
other  opinion  in  this  case. 

Argued  before  Van  Brunt,  P.  J.,  and  Hatch,  O'Brien, 
[ngraham,  and  Laughlin,  JJ. 

John  M.  Scribncr,  for  appellant. 
T.  S.  Ormiston,  for  respondents. 

II  vim.  T.  The  plea  of  tender  is  unavailing,  as  it  was  not 
made  to  appear  that  any  money  was  produced  at  the  time  when 
the  tender  was  claimed  to  have  been  made,  or  that  any  formal 
requisites  were  observed,  sufficient  to  make  a  valid  tender.  It  was 
said  in  Eddy  v.  Davis,  116  N.  Y.  247,  22  N.  E.  362: 

"A  tender  imports  not  only  readiness  and  ability  to  perform, 


620  Renunciation  by   Holder 

but  actual  production  of  the  thing  to  be  delivered.  The  formal 
requisite  of  a  tender  may  be  waived,  but  to  establish  a  waiver  there 
must  be  an  existing  capacity  to  perform." 

The  only  thing  disclosed  by  the  evidence  is  that  the  testator 
did  not  intend  to  take  the  money,  and  it  may  be  that  from  such 
situation,  if  it  had  been  made  to  appear  that  the  maker  of  the  note 
had  the  ability  to  perform,  it  would  constitute  a  waiver  of  the 
formal  requisites ;  but  there  is  no  evidence  to  show  that  he  either 
had  the  money  at  the  time  of  the  tender  ready  to  pay,  or  that  he 
had  the  means  of  producing  it  at  the  time.  The  tender  of  pay- 
ment did  not  discharge  the  debt,  and  the  mere  expression  by  the 
testator  that  he  desired  the  money  to  be  used  for  other  purposes, 
and  did  not  intend  to  take  it  in  discharge  of  the  note,  worked  no 
estoppel  upon  him  to  subsequently  change  his  mind  and  demand 
payment  of  it.  Consequently  the  tender  had  no  effect  upon  the 
note,  and  it  remained  a  subsisting  obligation. 

So  far  as  the  plea  of  the  discharge  of  the  note  by  way  of 
counterclaim  to  the  defendant's  claim  made  against  the  estate  of 
the  testator  is  concerned,  it  is  sufficient  to  say  that  it  was  not  used 
as  a  counterclaim  in  that  proceeding,  but  simply  as  evidence  in 
rebuttal  of  the  defendant's  claim.  As  such,  it  was  competent  for  the 
purpose  of  showing  an  indebtedness  of  the  defendant  to  the  testa- 
tor which  might — dependent  upon  circumstances — tend  to  rebut 
the  inference  that  there  was  a  large  indebtedness  in  favor  of  the 
defendant  against  the  testator,  as  the  former's  liability  upon  the 
promissory  note  might  be  entirely  inconsistent  with  the  existence 
of  a  large  claim  in  his  favor  against  the  testator.  But  whether 
it  had  great  or  little  probative  force  is  not  of  consequence,  as  it 
appears  not  to  have  been  used  as  an  offset  or  counterclaim  to  the 
defendant's  demand,  and  consequently  it  was  not  discharged  by 
any  judgment  or  determination  had  in  that  proceeding. 

This  brings  us  to  the  main  question  in  the  case — the  construc- 
tion of  the  written  declaration  of  the  testator,  which  was  found 
in  the  envelope  which  contained  the  note  after  his  death.  It  is 
probably  true  that  this  declaration  was  sufficient  to  discharge 
defendant's  obligation  upon  the  promissory  note,  within  the 
authority  of  Wckett  v.  Raby,  2  Brown's  House  of  Lords,  Rep. 
386.  The  declaration  therein  was  made  a  few  days  before  the 
death  of  the  testator,  in  these  words : 

"I  have  Raby's  bond,  which  I  keep;  I  don't  deliver  it  up,  for 
I  may  live  to  want  it  more  than  he ;  but  when  I  die  he  shall  have 
it,  he  shall  not  be  asked  or  troubled  for  it." 


Leask  et  al.  v.  Dew  621 

Suit  having  been  brought  upon  the  bond,  it  was  ordered  to  be 
delivered  up  and  canceled,  and  such  decision  was  affirmed  by  the 
House  of  Lords  upon  appeal.  The  declaration  in  the  present  case 
is,  in  one  vjvw,  stronger  than  the  declaration  in  that  case,  for 
therein  there  was  the  express  intention  of  the  testator  to  keep  the 
bond  as  a  subsisting  obligation  against  Raby,  and  it  was  not  to 
be  enforced  save  in  the  event  of  his  death,  when  it  was  to  take 
effect.  In  the  writing  under  consideration  in  this  case  there  is 
no  such  expression  in  terms.  A  similar  doctrine  was  announced 
in  Brinckerhoff  v.  Lawrence,  2  Sandf.  Ch.  412.  Therein  the  Raby 
Case  is  cited  with  approval.  The  declaration  therein  was,  like  the 
present,  limited  in  its  operative  force  to  events  which  might  hap- 
pen subsequently  to  the  death  of  the  declarant.  These  cases 
applied  the  common-law  rule,  and,  while  they  are  authoritative 
declarations  of  the  effect  of  this  instrument  at  common  law,  they 
are  not  controlling  in  its  construction  at  the  present  time,  for  the 
reason  that  the  force  and  effect  of  an  instrument  of  renunciation 
is  now  governed  by  the  provisions  of  section  203  of  the  Negotiable 
Instruments  Law  (Laws  1897,  P-  744<  c.  612)     It  reads: 

"The  holder  may  expressly  renounce  his  rights  against  any 
party  to  the  instrument  before,  at  or  after  its  maturity.  An  abso- 
lute and  unconditional  renunciation  of  his  rights  against  the  prin- 
cipal debtor  made  at  or  after  the  maturity  of  the  instrument,  dis- 
charges the  instrument.  But  a  renunciation  does  not  affect  the 
rights  of  a  holder  in  due  course  without  notice.  A  renunciation 
must  be  in  writing  unless  the  instrument  is  delivered  up  to  the 
person  primarily  liable  thereon." 

This  statute  was  taken  from  an  act  passed  by  the  British  Par- 
liament in  1882,  known  as  the  "Bills  of  Exchange  Act."  It  has 
been  quite  generally  adopted  in  various  states  of  the  American 
Union.    Its  provisions  are  as  follows  : 

"(1)  When  the  holder  of  a  bill  at  or  after  its  maturity  abso- 
lutelv  and  unconditionally  renounces  his  rights  against  the 
acceptor,  the  bill  is  discharged.  The  renunciation  must  be  in 
writing,  unless  the  bill  is  delivered  up  to  the  acceptor.  (2)  The 
liabilities  of  any  party  to  a  bill  may  in  like  manner  be  renounced 
by  the  holder  before,  at,  or  after  its  maturity,  but  nothing  in  this 
section  shall  affect  the  rights  of  a  holder  in  due  course  without 
notice  of  the  renunciation." 

It  is  readily  seen  that  these  two  statutes,  in  character  and 
import,  are  alike.  The  only  difference  is  change  in  the  form  of 
phraseology,  but  it  affects  neither  the  sense  nor  the  construction. 


Renunciation  ky  Holder 

A  single  case  has  arisen  in  England  under  the  provisions  of  this 
statute.  In  re  George,  L.  R.  44  Ch.  Div.  627,  decided  in  1890. 
Therein  it  appeared  that  the  testator  desired  to  have  destroyed  a 
note  for  £2,000  given  by  Mrs.  Francis.  Search  was  made  for  the 
same,  that  it  might  be  destroyed,  but  it  could  not  be  found.  At  the 
instance  of  the  decedent,  the  nurse  in  attendance  upon  him  wrote 
at 'his  dictation:  "30th  August,  1889.  It  is  by  Mr.  George's 
dying  wish  that  the  cheque  [sic]  for  £2,000  money  lent  to  Mrs. 
Francis  be  destroyed  as  soon  as  found."  The  nurse  added  to  this 
declaration  the  words:  "Mr.  George  is  perfectly  conscious  and 
in  his  sound  mind.  [Signed]  Nurse  T."  This  transaction  took 
place  two  or  three  hours  before  death.  The  testator  therein  left 
a  will,  in  which  he  bequeathed  to  Mrs.  Francis,  his  neice,  the  sum 
of  £6,000.  The  executors  of  the  will  declined  to  pay  the  bequest  in 
full,  and  thereupon  the  legatee  brought  an  action  to  determine 
the  question  as  to  whether  the  promissory  note  had  been  duly 
canceled.  The  court,  under  the  provision  of  the  statute  above 
quoted,  determined  that  the  renunciation  was  insufficient  to  dis- 
charge the  note.  Upon  the  case  there  presented,  I  should  be  dis- 
posed to  hold  that  it  amounted,  within  the  terms  of  the  act,  to  an 
unconditional  renunciation  of  the  rights  of  the  testator  against 
the  maker  of  the  note.  The  expression  that  it  was  the  testator's 
wish  that  it  be  destroyed  would  seem  to  constitute  an  announced 
declaration  to  destroy  the  instrument,  and,  as  such,  it  was  a  clear 
expression  of  a  renunciation  of  his  right  to  enforce  it.  In  the 
declaration  of  renunciation,  it  is  stronger  than  the  instrument 
relied  upon  in  the  present  case. 

There  is  some  obscurity  in  the  provisions  of  our  statute.  In 
its  first  sentence  it  provides  for  the  renunciation  of  the  rights  of 
the  holder  against  any  party  to  the  instrument  which  may  be 
made  before,  at,  or  after  its  maturity.  In  the  second  sentence  it 
provides  for  an  absolute  and  unconditional  renunciation  of  the 
rights  of  the  holder  against  the  principal  debtor  at  or  after  the 
maturity  of  the  instrument,  and  discharges  the  instrument.  The 
first  relates  to  the  party ;  the  second,  to  the  instrument.  It  is 
somewhat  difficult  to  see  how  there  could  be  an  absolute  dis- 
charge of  a  party  to  an  instrument  without  discharging  the 
instrument  as  an  obligation,  so  far  as  he  is  concerned.  We  do  not 
clearly  perceive  why  this  distinction  should  have  been  made.  It 
is  immaterial,  however,  to  the  rights  of  the  parties  to  the  present 
action.  The  instrument  of  renunciation  contains  no  express  dec- 
laration of  the  testator  to  renounce  his  rights  in  the  note  against 
the  party,  or  of  his  right  to  enforce  it  as  a  subsisting  obligation. 


JL.EASK    ET    AL. 


Dew  623 


The  expression  is:  "I  wish  [the  note]  to  be  canceled  in  case  of 
my  death."  There  is  nothing  in  these  words  which  can  be  con- 
strued as  expressing  a  renunciation  of  any  rights  either  against 
the  party  or  upon  the  instrument.  Had  it  been  delivered  to  the 
defendant  during  the  lifetime  of  the  testator,  it  would  not  have 
precluded  the  latter  at  any  time  upon  maturity  from  enforcing  the 
note.  There  is  nothing  indicating  an  intent  upon  his  part  not  to 
enforce  it  during  his  lifetime.  There  was  no  delivery  of  it  to  any- 
bodv.  and  while,  doubtless,  it  was  sufficiently  authenticated  to 
accomplish  a  renunciation,  it  had  no  operative  effect  whatever,  as 
it  did  not  fall  within  the  statute  or  comply  with  its  terms. 

In  principle,  the  question  raised  by  this  case  has  been  decided 
by  this  court.  (Dimon  v.  Kccry,  54  App.  Div.  318,  66  X.  Y. 
Supp.  817).  Therein  the  plaintiff's  intestate  loaned  to  the  defend- 
ant a  sum  of  money,  taking  her  promissory  note  in  writing. 
wherein  she  agreed  to  pay  the  same,  with  interest,  on  demand. 
At  the  time  the  note  was  delivered,  the  testator  indorsed  thereon 
the  words:  "at  my  death  the  above  note  becomes  null  and  void. 
Stephen  C.  Dimon."  Dimon  continued  to  retain  possession  of  the 
note,  and  the  defendant  paid  interest  thereon,  but  no  principal. 
Dimon  died  about  three  years  after  the  execution  and  delivery 
of  the  note.  In  an  action  to  enforce  the  same  by  his  administrator, 
the  defendant  was  held  liable  thereon,  as  the  indorsement  was  a 
mere  declaration  by  the  payee  of  the  note  as  to  his  intention  con- 
cerning it,  but  that  it  was  insufficient  as  constituting  either  a 
gift  of  money,  or  an  agreement  to  discharge  it  as  an  obligation. 
The  court  therein  did  not  discuss  the  statute  which  is  here  the 
subject  of  consideration.  It  is  manifest,  however,  that  the  dec- 
laration indorsed  upon  the  note  was  not  a  renunciation  of  the 
liability  of  the  maker  during  the  lifetime  of  the  deceased,  or  of  any 
renunciation  of  the  obligation  of  the  instrument ;  and,  as  it  did 
not  constitute  a  gift  or  an  agreement,  it  neither  fell  within  the 
terms  of  the  statute,  nor  exempted  the  defendant,  for  either  rea- 
son from  liability  thereon.  In  the  instrument  relied  upon  in  this 
case,  so  far  as  the  direction  for  cancellation  in  the  event  of  death, 
and  a  command  to  his  heirs  to  obey  his  wish  and  follow  his  orders, 
the  language  is  no  stronger  than  the  indorsement  upon  the  back 
of  the  note  in  the  Dimon  Case.  Nor  is  it  as  strong,  because  the 
language  there  used  was  a  declaration  that  the  note  at  death 
"becomes  null  and  void."  Here  there  is  simply  the  expression 
of  a  wish  to  have  it  canceled,  and  a  direction  to  the  heirs  to  obey 
the  wish.  Consequently  the  Dimon  Case  becomes  a  direct  and 
controlling  authority  in  the  disposition  of  this  controversy.     A.S 


t524  Effect  of  Alteration 

there  was  no  valid  renunciation  of  right  of  the  testator  to  enforce 
the  note  against  the  party,  or  of  renunciation  from  liability  upon 
the  instrument,  and  as  nothing  contained  in  the  declaration  other- 
wise operates  to  relieve  the  defendant  from  liability,  it  follows  that 
the  note  remains  a  valid  and  subsisting  obligation. 

The  judgment  enforcing  it  should  therefore  be  affirmed, 
with  costs. 
All  concur. 


EFFECT  OF  ALTERATION.  §  126. 

Simpson  v.  Stackhouse  (1848),  p  Pa.  St.  186,  49  Am.  Dec.  554. 

In  error  from  the  District  Court  of  Allegheny. 

This  was  an  action  against  an  endorser  of  a  note  drawn  by 
Sankey,  who  resided  in  Mercer  county.  It  was  proved  that  the 
body  of  the  instrument  was  in  the  handwriting  of  defendant ;  but 
that  the  words  "payable  at  the  bank  of  Pittsburgh,"  written  at  the 
end  of  the  instrument,  were  in  a  different  handwriting. 

The  defendant's  point  was,  that  it  was  incumbent  on  the 
plaintiff  to  show  these  were  written  at  the  time  of  the  endorse- 
ment, or  with  defendant's  consent. 

The  court  said  the  jury  must  decide  this  as  a  matter  of  fact. 

Shaler  and  Stanton,  for  plaintiff  in  error. 
Metcalf,  contra. 

Gibson,  C.  J. — As  a  general  rule  the  law  presumes,  in  favour 
of  innocence,  that  an  alteration  in  an  instrument  is  a  legitimate 
part  of  it,  till  the  contrary  appears;  but  it  is  not  extended  to  nego- 
tiable securities.  The  principle  of  the  English  cases  is,  that  an 
alteration  so  far  apparent  on  the  face  of  a  bill  or  note  as  to  raise  a 
suspicion  of  its  purity,  makes  it  incumbent  on  the  plaintiff  to 
prove  that  it  is  still  available,  and  that  it  is  not  incumbent  on  the 
defendant  to  disprove  it.  Johnson  v.  The  Duke  of  Marlborough, 
2  Stark.  Rep.  313;  Hcnman  v.  Dickinson,  5  Bing.  183;  Bishop 
v.  Chambre,  3  C.  &  P.  53 ;  and  Lcykariff  v.  Ash  ford,  12  Moore. 
281,  establish  that  the  general  presumption  of  innocence  in  such  a 
case  is  overborne  by  the  nature  of  the  instrument.  It  was  doubted 
by  the  learned  commentators  on  Mr.  Phillips's  Treatise  on  the 
Law  of  Evidence,  vol.  2,  p.  229,  whether  the  principle  of  the 
English  decisions  would  be  adopted  by  the  American  courts.  The 
later  decisions  in  the  United  States  are  discrepant,  but  their  pre- 


Simpson  v.  Stackhouse  625 

ponderance  is  in  favour  of  restraining  the  general  rule  to  deeds 
and  writings  not  negotiable.  In  McMicken  v.  Beauchamp,  2  Mil- 
ler's Louis.  Rep.  290,  it  was  ruled  that  interlineations  in  a  material 
part  of  an  acceptance  are  presumed  to  have  been  forged,  till  the 
contrary  is  shown;  in  Hills  v.  Barnes,  11  N.  H.  Rep.  395,  that  an 
unexplained  alteration  of  a  promissory  note,  apparent  on  the  face 
of  it,  is  presumed  to  have  been  made  after  execution  and  delivery  ; 
in  the  Commercial  and  R.  R.  Bank  v.  Lum,  7  Howard's  Miss. 
Rep.  414,  that  an  alteration  on  the  face  of  a  promissory  note 
must  be  shown  by  the  holder  to  have  been  innocently  made ;  and 
in  Warren  v.  Lay  ton,  3  Harring.  404,  that  a  party  cannot  recover 
on  an  altered  note  without  explanatory  proof.  So  far  the  Ameri- 
can cases  are  consistent.  But,  on  the  other  hand,  it  was  ruled  in 
Gooch  v.  Bryant,  1  Shep.  386,  that  an  alteration  of  a  figure  in  the 
date  of  a  note,  proved  to  be  such  by  inspection,  is  not  evidence  of 
itself  that  it  was  made  after  execution  and  delivery ;  in  Crabtree 
v.  Clark,  7  Shep.  337,  that  it  is  for  the  jury  to  determine — by 
inspection,  I  suppose — whether  an  unexplained  alteration,  appar- 
ent by  inspection,  was  made  before  or  after  execution ;  and  in 
Davis  v.  Carlisle,  6  Ala.  Rep.  707,  that  if  it  cannot  be  shown  by 
whom  a  note  has  been  altered,  the  court  cannot  presume  it  to  have  j 
been  altered  by  the  holder,  but  the  jury  may.  There  are  two  inde- 
cisive cases.  In  delivering  the  opinion  of  the  Supreme  Court  of 
New  Jersey,  in  Sayre  v.  Brookfield's  Administrators,  2  South.  yT,y, 
Mr.  Justice  Southard,  neither  admitting  nor  denying  the  principle 
of  the  English  decisions,  thought  that  the  insignificance  of  the 
alteration  in  that  case,  which  made  a  difference  in  the  interest  of 
only  a  few  cents,  was  sufficient  to  show  the  integrity  of  the  trans- 
action. In  the  other  case,  Runnion  v.  Crane,  4  Blackf.  466,  a 
jury  of  inquiry  were  allowed  to  disregard  an  unexplained  altera- 
tion of  a  note,  doubtless  because  they  could  not  go  behind  the 
interlocutory  judgment.  The  decision  is  authority  for  nothing. 
But  how  stands  the  question  on  principle?  The  English  decisions 
are  founded  in  reason,  and  not  in  considerations  growing  out  of 
the  stamp  acts.  He  who  takes  a  blemished  bill  or  note,  takes  it 
with  its  imperfections  on  its  head.  He  becomes  sponsor  for  them, 
and  though  he  may  act  honestly,  he  acts  negligently.  But  the 
law  presumes  against  negligence  as  a  degree  of  culpability ;  and  it 
presumes  that  he  had  not  only  satisfied  himself  of  the  innocence 
of  the  transaction,  but  that  he  had  provided  himself  with  the 
proofs  of  it  to  meet  a  scrutiny  he  had  reason  to  expect.  It  is  of 
no  little  weight,  too,  that  the  altered  instrument  is  found  in  his 
hands,  and  that  no  person  else  can  be  called  on  to  speak  of  it :  for 


626  Effect  of  Alteration 

without  a  presumption  to  sustain  him,  the  maker  would  in  every 
case  be  defenceless.  It  may  be  said  that  the  holder,  with  such  a 
presumption  against  him,  would  also  be  defenceless.  But  it  was 
his  fault  to  take  such  a  note.  As  notes  and  bills  are  intended  for 
negotiation,  and  as  payees  do  not  usually  receive  them  when  clog- 
ged with  impediments  to  their  circulation,  there  is  a  presumption 
that  such  an  instrument  starts  fair  and  untarnished,  which  stands 
till  it  is  repelled;  and  a  holder  ought,  therefore,  to  explain  why  he 
took  it  branded  with  marks  of  suspicion  which  would  probably 
render  it  unfit  for  his  purposes.  The  very  fact  that  he  received  it, 
is  presumptive  evidence  that  it  was  unaltered  at  the  time ;  and  to 
say  the  least,  his  folly  or  his  knavery  raised  a  suspicion  which  he 
ought  to  remove.  The  maker  of  a  note  cannot  be  expected  to 
account  for  what  may  have  happened  to  it  after  it  left  his  hands ; 
but  a  payee  or  endorsee  who  takes  it,  condemned  and  discred- 
ited on  the  face  of  it,  ought  to  be  prepared  to  show  whatsit  was 
when  he  received  it.  Now,  it  is  agreed  that  the  note  before  us 
was  drawn  and  endorsed  for  the  accommodation  of  the  maker  who 
negotiated  it,  and  who  consequently  stands  as  if  it  had  been  drawn 
by  the  endorsee  and  endorsed  by  himself,  as  it  might  just  as  well 
have  been,  the  difference  being  in  the  plan  of  the  security  and  not 
in  its  effect.  It  was  distinctly  proved  that  the  body  of  the  note  is 
in  the  handwriting  of  the  defendant,  and  that  the  words  "payable 
at  the  Bank  of  Pittsburgh,"  are  not.  The  difference  in  the  char- 
acter of  the  writing  is  obvious ;  and  the  additional  words  are 
broken  into  two  half  lines,  for  to  have  comprised  them  in  one 
would  have  required  it  to  be  run  through  the  signature,  and  they 
were  necessarily  crowded  into  the  left  hand  corner,  at  the  bottom 
of  the  paper.  That  is  certainly  not  the  ordinary  collocation  of  the 
lines  of  a  commercial  instrument.  Mr.  Chitty  says  in  his  Treatise 
on  Bills,  p.  213,  that  a  drawee  ought  not  to  accept  a  bill  which 
has  the  least  appearance  of  alteration ;  and  it  was  not  disputed  at 
the  trial  that  this  note  had  that  appearnce,  or  that  the  alteration 
was  in  a  material  part  of  it,  its  effect  being  to  dispense  with  per- 
sonal notice  of  dishonour.  The  question  was  on  the  onus,  and  the 
defendant  prayed  instruction  that  the  body  of  the  note  being  in 
his  handwriting,  and  the  questionable  words  being  in  a  different 
hand,  it  was  incumbent  on  the  plaintiff  to  show  that  they  were  in 
the  instrument  at  the  time  of  endorsement,  or  with  the  defendant's 
consent:  to  which  the  court  responded  that  the  jury  must  decide 
as  a  matter  of  fact.  The  response  was  a  refusal  of  the  prayer, 
and  a  denial  that  there  was  any  presumption  to  lead  to  a  particular 
conclusion.     There  was  no  direct  evidence  on  the  subject ;  the 


Moskowitz  v.   Deutsch  ET  AL.  627 

deposition  of  Sankey,  the  drawer,  who  had  given  credit  to  the  note 
by  his  name,  having  been  properly  ruled  out ;  but  on  the  prin- 
ciple of  the  English  cases,  and  a  majority  of  our  own,  the  defend- 
ant's prayer  ought  to  have  been  granted 

Judgment  reversed,  and  a  venire  facias  de  novo  azvarded. 


Moskowitz  v.  Deutsch  et  al.  (1905),  92  N.  Y.  Supp.  721. 

Appeal  from  Municipal  Court,  Borough  of  Manhattan, 
Fourth  District. 

Action  by  Max  Moskowitz  against  Isidor  Deutsch  and 
another.  From  a  judgment  for  plaintiff,  defendants  appeal. 
Affirmed. 

Argued  before  Scott,  O'Gokman,  and  Blanctiard,  JJ. 

Fried  &  Friedman,  for  appellants. 
H.  M.  IVald,  for  respondent. 

O'Gorman,  J. — The  defendants  made  a  check  to  one  Gold- 
berg under  date  of  September  2d.  On  the  following  day  the 
payee  represented  to  the  defendants  that  he  had  lost  this  check, 
whereupon  payment  thereof  was  stopped  at  the  bank,  and  five  or 
six  days  later  he  received  from  the  defendants  another  check  for 
the  same  amount,  which  was  duly  cashed.  A  day  or  two  after 
September  12th,  the  original  check  of  September  2d  with  a  "1" 
inserted  before  the  "2,''  making  the  date  September  "12,"  was 
indorsed  over  to  the  plaintiff  by  Goldberg,  and  cashed.  The 
plaintiff  now  sues  the  drawers,  and  the  defense  is  a  general  denial 
and  forgery.  That  the  date  of  this  check  had  been  altered  by 
Goldberg,  or  at  his  instance,  is  too  clear  for  dispute.  Such  an 
alteration  is  material,  constitutes  forgery,  and  destroys  the  valid- 
ity of  the  check,  except  as  provided  by  section  205  of  the  Negoti- 
able Instruments  Law  (Laws  1897,  p.  745,  c.  612),  which  declares 
that,  ''when  an  instrument  has  been  materially  altered  and  is  in 
the  hands  of  a  holder  in  due  course,  not  a  party  to  the  alteration, 
he  may  enforce  payment  thereof  according  to  its  original  tenor." 
If  it  be  assumed,  therefore,  as  the  court  below  has  found,  that 
the  plaintiff  is  an  innocent  holder  for  value  in  due  course,  he  may 
assert  such  rights  as  are  conferred  by  the  check  as  it  was  before 
the  alteration.  We  then  have  a  case  where  a  check  dated  Sep- 
tember 2d  is  cashed  by  the  plaintiff  and  presented  for  payment 
more  than  10  days  thereafter.    As  all  the  parties  resided,  and  the 


628  Effect  of  Alteration 

bank  was  situated,  in  the  city  of  New  York,  the  delay  in  the  pre- 
sentment of  the  check  was  unreasonable,  and  was  sufficient  to 
discharge  the  defendants  as  drawers  from  liability  thereon  to  the 
extent  of  the  loss,  if  any,  incurred  by  them  in  consequence  of  the 
delay.  But  the  only  way  in  which  a  drawer  of  a  check  can  be 
exposed  to  injury  by  such  delay  is  where  the  bank  becomes  insol- 
vent subsequent  to  the  delivery  of  the  check  and  prior  to  its  pre- 
sentment. (Eaton  &  Gilbert  on  Commercial  Paper,  630,  and  cases 
cited;  Andrus  v.  Bradley  [C.  C]  102  Fed.  54,  affirmed  107  Fed. 
196,  46  C.  C.  A.  238,  53  L.  R.  A.  432).  The  loss  suffered  by  the 
defendants  must  be  attributed  not  to  delay  in  the  presentment  of 
the  check,  but  to  their  imprudent  reliance  on  the  false  and  fraudu- 
lent representations  of  the  payee.  Before  giving  the  new  check. 
the  defendants  might  have  insisted  upon  full  indemnity  from 
Goldberg,  and  thus  escaped  the  loss  of  which  they  now  complain. 
By  their  conduct,  Goldberg  found  it  possible  to  perpetrate  a  fraud, 
and  the  consequences  of  their  misplaced  confidence  in  him  should 
be  borne  by  them,  and  not  visited  upon  the  plaintiff,  an  innocent 
party  to  the  transaction.  Upon  the  facts,  the  plaintiff  was  entitled 
to  judgment. 

Judgment  affirmed,  with  costs. 
All  concur. 


Porter  v.  Hardy.    (See  page  549.) 


TITLE  V. 

Conflict  of  Laws, 
what  law  governs  the  contract. — in  general. 

Hamlyn  &  Co.  v.  Taliskcr  Distillery  Co.  et  al.  {1894)   {House  of 
Lords) ,  L.  R.  19,  App.  Cas.  202. 

The  facts  appear  from  the  opinion. 

Lord  Herschell,  L.C. — My  Lords,  on  the  27th  of  January, 
1892,  an  agreement  was  entered  into  between  Roderick  Kemp  & 
Co.  of  the  Talisker  Distillery,  Carbost,  Isle  of  Skye,  and  Hamlyn 
&  Co.  of  London,  under  which  Hamlyn  &  Co.  were  to  supply  to 
the  distillery  a  patent  drying  machine  which  was  to  be  worked  by 
the  distillery  company,  who  were  to  bag  up  and  deliver  to  Hamlyn 
&  Co.  dried  grain  free  on  board  at  Carbost  to  their  order  or 
otherwise  as  required.  The  agreement  concludes  with  a  clause 
in  the  following  terms :  "Should  any  dispute  arise  out  of  this 
contract  the  same  to  be  settled  by  arbitration  by  two  members  of 
the  London  Corn  Exchange,  or  their  umpire,  in  the  usual  way." 
This  agreement  was  made  between  the  parties  in  England. 

Shortly  after  the  contract  was  entered  into  Alexander  Grigor 
Allan  became  the  sole  partner  in  the  firm  of  Roderick  Kemp  & 
Co.,  and  the  present  action  was  instituted  by  him  in  Scotland  in 
respect  of  an  alleged  breach  of  the  contract.  The  defenders 
pleaded  that  the  Court  of  Session  had  "no  jurisdiction,"  and  that 
"the  action  is  excluded  by  the  clause  of  reference  in  the  memoran- 
dum of  agreement."  These  pleas  were  repelled  by  the  Lord  Ordi- 
nary, and  his  judgment  was  affirmed  by  Lord  Adam  and  Lord 
M'Laren,  in  the  Inner  House,  Lord  Kinnear  dissenting.  During 
the  course  of  the  litigation  the  pursuer  died,  and  is  now  repre- 
sented by  the  respondents. 

It  is  not  in  controversy  that  the  arbitration  clause  is,  accord- 
ing to  the  law  of  England,  a  valid  and  binding  contract  between 
the  parties,  nor  that  according  to  the  law  of  Scotland  it  is  wholly 
invalid  inasmuch  as  the  arbiters  are  not  named.  The  view  taken 
by  the  majority  of  the  court  below  is  thus  expressed  by  Lord 


fyU* 


630  What  Law  Governs  the  Contract 

Adam:  "So  fas  as  I  see,  nothing  required  to  be  done  in  England 
in  implement  of  the  contract.  That  being  so,  I  am  of  opinion  with 
the  Lord  Ordinary  that  the  construction  and  effect  of  the  agree- 
ment, and  of  all  and  each  of  its  stipulations,  is  to  be  determined 
liv  the  lex  loci  solutionis,  that  is,  by  the  law  of  Scotland." 

It  is  not  denied  that  the  conclusion  thus  arrived  at  renders 
the  arbitration  clause  wholly  inoperative,  and  thus  defeats  the 
xpressed  intention  of  the  parties,  but  this  is  treated  as  inevitably 
following  from  the  rule  of  law  that  the  rights  of  the  parties  must 
be  wholly  determined  by  the  lex  loci  solutionis.  I  am  not  able 
altogether  to  agree  with  the  view  taken  by  the  learned  Lord  that 
everything  required  to  be  done  in  implement  of  the  contract  was 
to  be  done  in  Scotland,  inasmuch  as  it  appears  to  me  that  the 
arbitration  clause  which  I  have  read  to  your  Lordships  does  not 
indicate  that  that  part  of  the  contract  between  the  parties  was  to 
be  implemented  by  performance  in  Scotland.  That  clause  is  as 
much  a  part  of  the  contract  as  any  other  clause  of  the  contract, 
and  certainly  there  is  nothing  on  the  face  of  it  to  indicate,  but 
quite  the  contrary,  that  it  was  in  the  contemplation  of  the  parties 
that  it  should  be  implemented  in  Scotland. 

The  learned  judges  in  the  court  below  treat  the  lex  loci  solu- 
tionis of  the  main  portion  of  the  contract  as  conclusively  determin- 
ing that  all  the  rights  of  the  parties  under  the  contract  must  be 
governed  by  the  law  of  that  place.  I  am  unable  to  agree  with 
them  in  this  conclusion.  Where  a  contract  is  entered  into  between 
parties  residing  in  different  places,  where  different  systems  of  law 
prevail,  it  is  a  question,  as  it  appears  to  me,  in  each  case,  with 
reference  to  what  law  the  parties  contracted,  and  according  to 
what  law  it  was  their  intention  that  their  rights  either  under  the 
whole  or  any  part  of  the  contract  should  be  determined.  In  con- 
sidering what  law  is  to  govern,  no  doubt  the  lex  loci  solutionis  is  a 
matter  of  great  importance.  The  lex  loci  contractus  is  also 
of  importance.  In  the  present  case  the  place  of  the  contract 
was  different  from  the  place  of  its  performance.  It. is  not  neces- 
sary to  enter  upon  the  inquiry,  which  was  a  good  deal  discussed 
at  the  bar,  to  which  of  these  considerations  the  greatest  weight  is 
to  be  attributed,  namely,  the  place  where  the  contract  was  made, 
or  the  place  where  it  is  to  be  performed.  In  my  view  they  are 
both  matters  which  must  be  taken  into  consideration,  but  neither 
of  them  is,  of  itself,  conclusive,  and  still  less  is  it  conclusive,  as 
it  appears  to  me,  as  to  the  particular  law  which  was  intended  to 
govern  particular  parts  of  the  contract  between  the  parties.  Tn 
this  case,  as  in  all  such  cases,  the  whole  of  the  contract  must  be 


Hamlyn  &  Co.  v.  Talisker  Distillery  Co.  et  al.         631 

looked  at  and  the  rights  under  it  must  be  regulated  by  the  inten- 
tion of  the  parties  as  appearing  from  the  contract.  It  is  perfectly 
competent  to  those  who  under  such  circumstances  as  I  have 
indicated  are  entering  into  a  contract,  to  indicate  by  the  terms 
which  they  employ,  which  system  of  law  they  intend  to  be  applied 
to  the  construction  of  the  contract  and  to  the  determination  of  the 
rights  arising  out  of  it. 

Now  in  the  present  case  it  appears  to  me  that  the  language 
of  the  arbitration  clause  indicates  very  clearly  that  the  parties 
intended  that  the  rights  under  that  clause  should  be  determined 
according  to  the  law  of  England.  As  I  have  said,  the  contract 
was  made  there;  one  of  the  parties  was  residing  there.  Where 
under  such  circumstances  the  parties  agree  that  any  dispute  aris- 
ing out  of  their  contract  shall  be  "settled  by  arbitration  by  two 
members  of  the  London  Corn  Exchange,  or  their  umpire,  in  the 
usual  way,"  it  seems  to  me  that  they  have  indicated  as  clearly  as  . 
it  is  possible  their  intention  that  that  particular  stipulation,  which 
is  a  part  of  the  contract  between  them,  shall  be  interpreted  accord- 
ing  to  and  governed  by  the  law,  not  of  Scotland,  but  of  England, 
and  I  am  aware  of  nothing  which  stands  in  the  way  of  the  inten- 
tion of  the  parties,  thus  indicated  by  the  contract  they  entered 
into,  being  carried  into  effect.  As  I  have  already  pointed  out, 
the  contract  with  reference  to  arbitration  would  have  been  abso- 
lutely null  and  void  if  it  were  to  be  governed  by  the  law  of  Scot- 
land. That  cannot  have  been  the  intention  of  the  parties:  it  is 
not  reasonable  to  attribute  that  intention  to  them  if  the  contract 
may  be  otherwise  construed ;  and,  for  the  reasons  which  I  have 
given,  I  see  no  difficulty  whatever  in  construing  the  language  used 
as  an  indication  that  the  contract,  or  that  term  of  it,  was  to  be 
governed  and  regulated  by  the  law  of  England. 

But  then  it  is  said  that  the  Scotch  Court  is  asked  to  enforce 
a  law  which  is  against  the  public  policy  of  the  law  of  Scotland, 
.  and  that  although  the  parties  may  have  so  contracted  the  courts  in 
Scotland  cannot  be  bound  to  enforce  a  contract  which  is  against  _ 
the  policy  of  their  law.  I  should  be  prepared  to  admit  that  an 
agreement  which  was  opposed  to  a  fundamental  principle  of  the 
law  of  Scotland  founded  on  considerations  of  public  policy  could 
not  be  relied  upon  and  insisted  upon  in  the  courts  of  Scotland ; 
and  if  according  to  the  law  of  Scotland  the  courts  were  allowed 
their  jurisdiction  to  try  the  merits  of  a  case  to  be  interfered  with 
by  an  arbitration  clause,  there  would  be  considerable  force  in 
the  contention  which  was  urged  by  the  respondents.  But  that  is 
not  the  case.     The  courts  in  Scotland  recognise  the  right  of  the 


632  What  Law  Governs  the  Contract 

parties  to  a  contract  to  determine  that  any  disputes  under  it  shall 
be  settled,  not  in  the  ordinary  course  of  litigation,  but  by  an  arbi- 
tration tribunal  selected  by  the  parties.  If  in  the  present  case  the 
arbitrators  had  been  named,  the  courts  in  Scotland  would  have 
recognised  and  given  effect  to  and  enforced  the  arbitration  clause, 
and  would  by  reason  of  it  have  declined  to  enter  upon  a  trial  of 
the  merits  of  the  case.  That  being  so,  I  have  been  unable  to 
understand  upon  what  fundamental  principle  of  public  policy 
the  rule  can  be  said  to  rest  that  where  an  arbitrator  is  not  named 
an  agreement  between  the  parties  to  refer  a  matter  to  arbitration 
ought  not  to  be  enforced. 

It  is  not  necessary  to  inquire  into  the  history  of  the  distinction 
which  has  arisen  in  the  courts  of  Scotland  between  arbitration 
clauses  where  arbiters  are  named  and  clauses  with  an  unnamed 
arbiter.  It  is  sufficient  to  say  that  when  once  it  is  admitted,  as  it 
must  be,  that  the  courts  of  Scotland  do  enforce  and  give  effect  to 
an  arbitration  clause,  and  hold  their  hands  from  the  determina- 
tion of  the  merits  by  reason  of  the  parties  having  agreed  upon  it, 
it  seems  to  me  to  follow  that  if  this  arbitration  clause  is  to  be 
interpreted  according  to  the  law  of  England,  and  is  therefore  a 
valid  arbitration  clause,  there  is  no  reason  why  the  courts  in 
Scotland  should  not  give  effect  to  it  just  as  much  as  if  it  were  a 
valid  arbitration  clause  according  to  the  law  of  Scotland. 

But  then  it  is  argued  that  an  agreement  to  refer  disputes  to 
arbitration-  deals  with  the  remedy  and  not  with  the  rights  of  the 
parties,  and  that  consequently  the  forum  being  Scotch  the  parties 
cannot  by  reason  of  the  agreement  into  which  they  have  entered 
interfere  with  the  ordinary  course  of  proceedings  in  the  courts 
of  Scotland.  Stated  generally,  I  should  not  dispute  that  proposi- 
tion so  far  as  it  lays  down  that  the  parties  cannot,  in  a  case  where 
the  merits  fall  to  be  determined  in  the  Scotch  courts,  insist,  by 
virtue  of  an  agreement,  that  those  courts  shall  depart  from  their 
ordinary  course  of  procedure.  But  that  is  not  really  the  question 
which  has  to  be  determined  in  the  present  case.  The  question 
which  has  to  be  determined  is  whether  it  is  a  case  in  which  the 
courts  of  Scotland  ought  to  entertain  the  merits  and  adjudicate 
upon  them.  If  it  were  such  a  case,  then  no  doubt  the  ordinary 
course  of  procedure  in  the  Scotch  courts  would  have  to  be  fol- 
lowed ;  but  the  preliminary  question  has  to  be  determined  whether 
by  virtue  of  a  valid  clause  of  arbitration  the  proper  course  is  for 
the  courts  in  Scotland  not  to  adjudicate  upon  the  merits  of  the 
case,  but  to  leave  the  matter  to  be  determined  by  the  tribunal  to 
which  the  parties  have  agreed  to  refer  it.     Viewed  in  that  light, 


Woodruff  et  al.  v.  Hill  et  al.  638 

I  can  sec  no  difficulty ;  and  the  argument  that  to  give  effect  to 
this  arbitration  clause  would  interfere  with  the  course  of  pro- 
cedure in  the  forum  in  which  the  action  is  pending  seems  to 
me  entirely  to  fail.  For  these  reasons  I  move  that  the  judgment 
appealed  from  be  reversed. 

So  ordered.     The  cause  remitted    *     *     *     in  order 
that  the  matters  in  dispute  may  be  settled  by  arbitra- 
tion in  terms  of  the  contract. 
(The  concurring  opinions  of  Lord  Watson  and  Lord  Ash- 
bourne omitted). 


WHAT  LAW  GOVERNS  CONTRACT  OF  MAKER  OR  ACCEPTOR. 

Woodruff  et  al.  v.  Hill  et  al.  (18/4),  116  Mass.  310. 

Contract  upon  a  promissory  note  for  $1352.70.  At  the  trial 
in  the  Superior  Court,  before  Putnam,  J.,  the  plaintiffs  offered 
evidence  tending  to  prove  that  the  defendants  made  the  note,  and 
that  the  payees  indorsed  it  before  maturity  to  the  plaintiffs,  who 
paid  to  thlTpayees  at  the  time  of  the  indorsement,  and  as  the  con- 
sideration therefor,  $699.48  in  cash,  and  credited  the  payees  with 
$629.55,  in  payment  of  a  preexisting  debt  due  from  them  to  the 
plaintiffs,  the  balance  of  said  note  amounting  to  $23.67,  being 
charged  and  allowed  for  interest.  The  payees  of  the  note  and  the 
plaintiffs  are  residents  of  New  York,  and  the  indorsement  was 
made  in  that  state.  The  defendants  are  residents  of  Boston,  in 
this  Commonwealth,  and  the  note  was  made  and  was  payable  in 
Boston. 

The  defendants  offered  to  prove  that  by  the  law  of  New 
York"  the  plaintiffs,  upon  the  above  evidence,  were  not  bona 
tide  holders  for  value  except  as  to  the  amount  of  the  money  paid 
by  them  to  the  payees  at  the  time  of  the  indorsement;  that  the 
note  was  given  by  them  without  consideration  to  the  payees,  they  _ 
agreeing  not  to  use  the  same  except  as  collateral  to  their  own  note, 
to  raise  money  upon ;  and  that,  as  between  them  and  the  payees, 
the  transfer  of  the  note  to  the  plaintiffs  was  fraudulent.  The 
defendants  did  not  contend  that  the  plaintiffs  had  any  knowledge 
of  the. want  of  consideration  of  the  note,  or  of  the  purpose  for 
which  it  was  given. 

The  judge  ruled  that  the  facts  offered  by  the  defendants 
would  not,  if  proved,  constitute  a  defense,  and  that  the  law  of  this 
Commonwealth  and  not  the  law  of  New  York  governed,  and 


h)****' 


634  What  Law  Governs  Contract  of  Maker 

instructed  the  jury  to  return  a  verdict  for  the  plaintiffs  for  the 
whole  amount  of  the  note.     The  defendants  alleged  exceptions. 

A.  A.  Ranncy,  for  the  defendants. 

H.  J.  Boardman  &  C.  Blodgett,  for  the  plaintiffs. 

Gray,  C.  J. — The  note  was  made  in  Massachusetts,  and  the 
contract  of  the  makers  with  the  payees  and  with  any  indorsee 
thereof  was  to  be  performed  here,  and  governed  by  our  law. 
(Story  Confl.  Laws,  §§317,  344,  345).  By  that  law,  the  facts 
offered  to  be  proved  at  the  trial  constituted  no  defence.  (Blan- 
\  chard  v.  Stevens,  3  Cush.  162). 
N^  Exceptions  overruled. 


Phipps  et  al.  v.  Harding  (1895),  17  C.  C.  A.  203;  70  Fed.  468. 

In  error  to  the  Circuit  Court  of  the  United  States  for  the 
Western  District  of  Wisconsin. 

This  suit  was  brought  to  recover  the  amount  of  a  promissory 
note  executed  by  the  Hudson  Furniture  Company  (a  corporation 
of  the  state  of  Wisconsin),  dated  Hudson,  Wis.,  March  26,  1892, 
payable  April  14,  1893,  to  the  order  of  Edgar  Harding,  the 
defendant  in  error,  for  the  sum  of  $5,000,  payable  at  the  North 
National  Bank,  Boston,  Mass.  Prior  to  its  delivery  or  acceptance, 
the  plaintiffs  in  error  severally  signed  their  names  upon  the  back 
thereof  for  the  purpose  of  giving  credit  to  such  note  with  the 
payee.  It  was  thereupon  sent  by  mail  from  Hudson,  Wis.,  to  the 
payee,  at  his  residence  in  the  state  of  Massachusetts,  with  the 
request  that  he  would  accept  it  in  lieu  of  and  in  extension  of  a 
note  of  the  Hudson  Furniture  Company  for  a  like  amount  then 
held  by  him,  and  maturing  at  or  about  the  date  of  the  new  note. 
It  was  received  by  the  payee  in  the  state  of  Massachusetts,  and 
there  accepted  by  him  for  the  prior  obligation  of  the  company, 
upon  the  faith  and  security  of  the  individual  names  upon  the 
paper.  The  note  was  not  paid  at  maturity.  It  was  not  properly 
protested  for  non-payment,  nor  were  the  plaintiffs  in  error  season- 
ably notified  of  its  presentment  and  non-payment.  At  the  time  of 
its  execution  and  delivery,  the  Hudson  Furniture  Company  was 
insolvent,  to  the  knowledge  of  the  plaintiffs  in  error,  who  were 
directors  of  the  company,  constituting  the  majority  of  its  board 
of  directors  at  the  time  of  its  execution,  and  so  continued  down 
to  and  after  maturity  of  the  note. 

By  the   statute  of   Massachusetts    (St.    1874,   c.   404)    it   is 


Phipps  et  al.  v.   Harding  635 

enacted  that  "all  persons  becoming  parties  to  promissory  notes 
payable  on  time,  by  signature  on  the  back  thereof,  shall  be  entitled 
to  notice  of  the  non-payment  thereof  the  same  as  endorsers." 

The  case  was  tried  in  the  court  below,  without  the  interven- 
tion of  a  jury.  The  court  found  the  facts  as  above  stated,  and, 
as  conclusion  of  law  upon  such  facts,  held  that  the  several  indi- 
vidual defendants  (plaintiffs  in  error  here)  were  "joint  and  sev- 
eral makers  of  said  note,  and  therefore  not  entitled  to  protest  of 
said  note,"  and  judgment  was  rendered  against  all  the  defendants 
for  the  amount  due  upon  the  note. 

It  is  assigned  for  error  that  the  court  erred  in  the  following 
respects:  (i)  In  the  finding  and  decision  of  the  said  circuit  court 
that  at  the  time  of  the  execution  and  delivery  of  the  note  upon 
which  this  action  was  brought  to  the  plaintiff,  the  defendant,  the 
Hudson  Furniture  Company,  was  insolvent;  (2)  in  that  the  said 
court  also  found  and  decided  that  such  insolvency  was  known  by 
the  defendants,  Phipps,  Coon,  Jones,  and  Goss;  (3)  in  the  find- 
ing and  decision  of  the  said  court  that  the  said  Phipps,  Coon, 
Jones,  and  Goss  signed  the  said  note ;  (4)  in  the  finding  and 
decision  of  said  court  that  said  Phipps,  Coon,  Jones,  and  Goss 
were  not  entitled  to  protest  of  said  note;  (5)  in  the  finding  and 
decision  that  plaintiff  recover  from  the  defendants  above  named 
the  amount  due  on  said  note,  with  interest  and  costs;  (6)  in  the 
finding  and  decision  of  said  court  by  which  judgment  is  ordered 
according  to  the  findings. 

Charles  P.  Spooner  and  James  P.  Kerr,  for  plaintiffs  in  error. 
M.  H.  Houtelle,  for  defendant  in  error. 

Before  Woods  and  Jenkins,  Circuit  Judges,  and  Baker,  Dis- 
trict Judge. 

Jenkins,  Circuit  Judge,  after  stating  the  facts,  delivered  the 
opinion  of  the  court. 

We  are  not  at  liberty  to  review  the  evidence  to  ascertain 
whether  the  finding  of  the  court  below  upon  the  facts  was  war- 
ranted by  the  testimony.  We  are  restricted  to  the  consideration 
of  the  question  whether  the  facts  as  found  support  the  judgment 
rendered.  (Jcnks'  Adm'r  v.  Stapp,  9  U.  S.  App.  34,  3  C.  C.  A. 
244,  and  52  Fed.  641).  We  must  therefore  consider  the  case  upon 
the  assumption  that,  at  the  time  of  the  execution  of  the  note,  the 
Hudson  Furniture  Company  was  insolvent,  to  the  knowledge  of 
the  individual  parties  to  the  note,  who  were  its  directors.    *    *    * 

It  is  settled  doctrine  that  the  federal  courts,  in  the  exercise  of 
their  co-ordinate  jurisdiction,  are  not  bound  by  the  decisions  of 


b3C  What  Law  Governs  Contract  of  Maker 

the  state  courts  upon  subjects  of  general  law,  but  are  at  liberty  to 
follow  the  convictions  of  their  own  judgment.  (Swift  v.  Tyson, 
16  Pet.  i ;  Railroad  Co.  v.  National  Bank,  102  U.  S.  14;  Burgess 
v.  Scligman,  107  U.  S.  20,  2  Sup.  Ct.  10;  Myrick  v.  Railroad  Co., 
107  U.  S.  102,  1  Sup.  Ct.  425 ;  Railway  Co.  v.  Prentice,  147  U.  S. 
106,  13  Sup.  Ct.  261).  Therefore,  notwithstanding  it  has  been 
held  by  the  supreme  court  of  the  state  in  which  this  note  was 
executed  that  parties  standing  in  like  relation  to  bills  and  notes 
with  the  plaintiffs  in  error  here  are  to  be  treated  as  indorsers 
(Blakcslcc  v.  Hewitt,  76  Wis.  341,  44  N.  W.  1105),  the  supreme 
court  of  the  United  States,  in  Good  v.  Martin,  95  U.  S.  90,  and 
Bendey  v.  Townsend,  109  U.  S.  665,  667,  3  Sup.  Ct.  482,  has 
determined  that  they  must  be  treated  as  joint  makers  of  the  note 
with  the  party  who  appears  thereon  as  maker.  And  such  is  also 
the  law  of  Massachusetts.  (Bank  v.  Willis,  8  Mete.  [Mass.]  504; 
Brown  v.  Butler,  99  Mass.  179;  Way  v.  Butterworth,  108  Mass. 
509;  Allen  v.  Brown,  124  Mass.  yy).  We  are  therefore  con- 
strained to  hold  that  the  plaintiffs  in  error  were  joint  makers  with 
the  Hudson  Furniture  Company  of  this  note,  and,  if  the  contract 
is  to  be  controlled  by  the  law  of  the  state  of  Wisconsin,  were  not 
entitled  to  notice  of  protest.  Being  joint  makers  of  the  note,  their 
liability  is  controlled  by  the  law  of  the  place  where  the  contract 
is  payable,  because  they  are  deemed  to  have  reference  to  the  law 
of  such  place  in  the  construction  of  the  obligation  assumed. 
(Brabston  v.  Gibson,  9  How.  263,  2jy;  Supervisors  v.  Galbraith, 
99  U.  S.  214,  218;  Pierce  v.  Indseth,  106  U.  S.  546,  1  Sup.  Ct. 
418;  1  Daniel,  Neg.  Inst.  [4th  Ed.],  §895).  It  would  be  other- 
wise with  respect  to  the  indorser  of  a  note,  for  he  is  treated  as  in 
fact  entering  into  a  new  obligation,  undertaking  that  the  maker 
will  pay  at  the  time  and  place  stipulated,  and  that  he  (the  indor- 
ser) will  respond  to  his  obligation  at  the  place  of  the  execution 
of  his  indorsement,  if  there  delivered,  in  the  event  of  dishonor 
and  notice.  If  delivered  at  a  place  other  than  at  the  place  of  exe- 
cution, the  law  of  the  place  where  delivered  controls.  (Daniel, 
Neg.  Inst.,  §§  868,  899 ;  Slacum  v.  Pomeroy,  6  Cranch,  221 ; 
Musson  v.  Lake,  4  How.  262).  The  plaintiffs  in  error  thus  being 
joint  makers  of  a  note  payable  and  delivered  in  the  state  of  Mas- 
sachusetts, their  obligation  is  to  be  judged  by  the  law  of  that 
state. 

We  are  therefore  brought  to  the  inquiry  whether  the  statute 
of  that  state  to  which  reference  has  been  made  is  operative  to 
clothe  the  joint  makers  with  the  rights  to  notice  of  protest  that 
an  indorser  is  entitled  to.     This  statute  manifestly  regards  all 


Phipps  et  al.  v.  Harding  637 

parties  to  a  note  by  signature  on  the  back  thereof,  whether  they 
were  to  be  treated  as  guarantors  or  as  joint  makers,  in  the  light 
of  sureties  for  the  maker,  and  recognizes  the  equitable  right  of 
such  parties  to  notice  and  dishonor  of  the  note  by  their  principal. 
It  sought  to  place  them,  with  respect  to  presentment,  demand,  and 
notice  of  dishonor,  upon  the  same  footing  with  an  indorser.  The 
statute  was  thus  construed  by  the  supreme  judicial  court  of  that 
commonwealth  in  Bank  v.  Lcnv,  127  Mass.  72,  prior  to  the  execu- 
tion of  the  contract  in  question.  We  are,  of  course,  bound  by  that 
construction.  {Louisville,  N.  O.  &  T.  Ry.  Co.  v.  Mississippi, 
133  U.  S.  587,  10  Sup.  Ct.  348;  Baltimore  Traction  Co.  v.  Balti- 
more Belt  R.  Co.,  151  U.  S.  137,  14  Sup.  Ct.  294).  So  that, 
assuming  the  validity  of  that  statute,  any  one  becoming  a  party  to 
a  note  payable  on  time  by  signature  on  the  back  thereof,  whether 
he  be  treated  as  guarantor  or  joint  maker,  is  in  fact  a  mere  surety 
for  the  maker;  his  liability  is  conditional  and  secondary;  and 
before  he  can  be  charged,  he  must  have  the  same  notice  of  protest 
that  an  indorser  by  the  law  merchant  would  be  entitled  to  under 
like  circumstances.  He  stands  in  this  respect  in  the  shoes  of  an 
indorser.  The  statute  entered  into  and  is  a  term  of  the  contract. 
The  engagement  of  the  plaintiffs  in  error,  therefore,  was  that  if, 
upon  due  demand,  the  note  should  not  be  paid  according  to  its 
tenor,  they  would  compensate  the  holder  or  a  subsequent  indorser 
who  was  compelled  to  pay,  provided  the  requisite  proceedings  on 
dishonor  were  duly  taken. 

It  is  urged,  however,  that  we  must  disregard  this  statute: 
and,  in  support  of  this  contention,  the  broad  doctrine  is  asserted 
that  the  several  states  of  this  Union  have  no  right  by  statute  to 
change  the  general  commercial  law.  This  contention  is  rested 
upon  certain  observations  of  justices  delivering  the  opinions  of 
the  court  in  Swift  v.  Tyson,  16  Pet.  1,  18,  and  Watson  v.  Tarpley, 
18  How.  517,  521.    ***** 

It  may  not  be  denied  that  the  language  employed  gives  color 
of  authority  to  the  pretension.     ***** 

The  observations  referred  to  in  both  the  cases  were  certainly 
obiter  so  far  as  they  seem  to  imply  or  can  be  properly  construed 
as  holding  that  a  state  is  without  power  with  respect  to  contracts 
made  within  its  jurisdiction,  and  controlled  by  its  law.  In  view  of 
the  eminent  learing  of  the  distinguished  jurists  referred  to,  their 
observations  are  to  be  treated  with  great  deference ;  but,  if  sus- 
ceptible of  the  meaning  contended  for,  they  cannot  be  held  to 
declare  the  settled  law  of  the  land  without  determination  of  the 
question  by  the  supreme  court  in  a  cause  wherein  the  question 
was  involved  and  necessary  to  be  decided. 


(538  What  Law  Governs  Contract  of  Maker 

There  are  a  number  of  decisions  of  the  supreme  court  which 
distinctly  recognize  the  right  of  such  legislation  by  the  state. 
***** 

The  contention  that  this  statute  of  Massachusetts  is  invalid 
and  inoperative  goes  to  the  extent  of  depriving  a  state  of  power 
to  legislate  with  respect  to  the  law  merchant.  It  presents  a  bold 
and  far-reaching  proposition,  striking  at  the  root  of  power  in  the 
iv>]KCtive  states  to  which  we  are  not  prepared  to  yield  assent. 
We  are  referred  to  no  provision  of  the  constitution  which 
expressly  or  impliedly  inhibits  the  exercise  of  such  power  by  the 
state.  The  contention  assumes  that  there  is  a  commercial  law  of 
the  United  States  distinct  from  and  independent  of  the  law  of  the 
states.  Whence  came  it,  and  how  was  it  adopted?  Was  it  the 
common  law  of  England  or  the  civil  law  of  continental  Europe? 
Was  it  a  law  appropriated  by  the  nation  upon  the  adoption  of  the 
constitution  ?  It  must  then  be  universal  in  its  application  through- 
out the  nation,  overriding  all  state  laws  upon  the  subject  and  all 
right  of  the  states  to  legislate.  We  know  that  most  of  the  states 
are  governed  by  the  common  law  of  England  as  modified  and 
adapted  to  the  peculiar  circumstances  and  conditions  of  each,  and 
that  one  state,  at  least,  is  governed  by  the  civil  law.  And  we 
know,  moreover,  that  the  commercial  law  existing  in  these  various 
states,  while  alike  with  regard  to  underlying  principles,  is  widely 
different  in  many  essential  respects.  There  is  no  common  law  of 
the  United  States,  except  possibly  as  the  common  law  of  England 
has  been  adopted  with  reference  to  the  construction  of  powers 
granted  to  the  federal  Union.     ***** 

Mr.  Daniel,  in  his  valuable  treatise  upon  the  law  of  Nego- 
tiable Instruments  (sections  863  and  864),  defines  the  principle 
which  should  rule  the  question  in  the  following  explicit  language: 

"Each  one  of  the  United  States  is,  in  contemplation  of  its 
own  and  of  the  federal  constitution,  a  distinct  and  independent 
sovereignty,  with  its  own  peculiar  code  of  laws  and  systems  of 
judicature.  And  while,  in  the  aggregate,  they  compose  one  inte- 
gral confederacy,  which  is  itself  an  independent  nation,  paramount 
in  certain  respects  to  the  states,  in  all  other  respects  the  states 
retain  their  separate  autonomies,  and  are  deemed  as  much  foreign 
to  each  other  as  if  not  in  any  wise  associated  together.  The  reg- 
ulation of  contracts  comes  peculiarly  within  the  province  of 
the  states,  and  therefore  contracts  between  citizens  of  the  differ- 
ent states,  while  they  may  be  enforced  by  process  in  the  federal 
courts,  nevertheless  are  to  be  construed  and  effectuated,  not  by 
a  general  system  of  laws  which  overspread  the  whole  country, 


Phipps  et  al.  v.  Harding  639 

but  in  accordance  with  the  principles  of  international  law  which 
govern  transactions  between  parties  of  different  nations. 

"Sec.  864.  As  long  as  all  the  parties  to  a  bill  or  note  are  con- 
fined within  the  limits  of  a  single  state,  the  local  law  alone  deter- 
mines their  rights  and  liabilities.  No  suit  can  be  brought  in  a 
federal  court,  and  any  question  which  may  be  litigated  begins  and 
ends  with  the  local  tribunals.  But  the  vast  and  constant  traffic 
between  the  states,  and  the  general  use  of  bills  and  notes  as  a 
medium  of  exchange,  gives  circulation  to  those  instruments  from 
hand  to  hand,  and  from  state  to  state ;  and  questions  of  nicety  are 
often  presented  in  the  inquiry  by  what  law  the  rights  and  liabili- 
ties of  the  parties  are  to  be  ascertained.  In  some  of  the  states, 
as  in  Maryland,  the  English  statute  of  3  &  4  Anne  is  in  force.  In 
others,  as  in  Virginia,  where  none  but  notes  payable  at  bank  are 
negotiable,  there  are  peculiar  statutory  provisions  respecting  com- 
mercial paper.  In  all  of  the  states  each  recognizes  the  precedents 
of  its  own  courts,  as  independently  of  the  rulings  of  the  supreme 
court  of  the  United  States  as  of  those  of  Great  Britain,  which 
may,  indeed,  shed  great  light  on  all  commercial  questions,  but  are 
of  no  binding  authority.  When  suit  is  brought  in  one  of  the 
federal  courts,  it,  on  the  other  hand,  will  be  guided  by  the  general 
law  merchant  in  questions  referable  to  it,  and  will  follow  its  own 
views  about  it,  unless  the  nature  of  the  liability  contracted  has 
already  been  determined,  in  the  particular  state  of  the  contract, 
at  the  time  it  was  entered  into." 

We  are  of  opinion  that  these  principles  are  not  shaken  by  the 
obiter  dicta  to  which  reference  has  been  made.  It  will  thus  be 
seen  that,  in  the  exercise  of  the  concurrent  jurisdiction  of  the 
federal  court  with  respect  to  all  contracts  not  within  the  exclusive 
control  of  the  federal  government,  we  administer  the  law  of  the 
state  which  controls  the  contract,  and  that  each  state  has  the 
right  to  impose  such  conditions  and  limitations  upon  contracts, 
not  inhibited  by  the  terms  of  its  own  or  the  federal  constitution, 
as  it  may  see  proper.  It  is,  of  course,  most  desirable  that  there 
should  be  uniformity  of  laws  with  respect  to  commercial  paper  — 
a  necessity  becoming  more  and  more  emphasized  day  by  day,  and 
which  may  possibly  result  in  the  grant  of  exclusive  control  of  the 
subject  to  the  federal  government.  It  is  not,  however,  within  our 
provinces  to  bring  about  such  a  result,  however  desirable.  We 
are  constrained  to  hold  that  the  act  of  Massachusetts  here  in 
question  was  a  valid  exercise  of  power,  and  became  a  term  of  this 
contract.  The  nature  of  the  liability  at  the  time  of  the  making  of 
fHcTon"tract_was  declared  by  the  statute  law  of  the  state  of  the 


640  What  Law  Governs  Contract  of  Maker 

contract,  and  \vc  must  construe  the  contract  in  the  light  of  such 
statute  law. 

We  are  thus  brought  to  the  question  whether  the  known 
insolvency  of  the  maker  at  the  time  of  the  execution  of  the  note, 
and  the  fact  that  the  plaintiffs  in  error  were  directors,  constitut- 
ing a  majority  of  the  board  of  directors,  of  the  maker  of  the  note, 
obviate  the  necessity  of  presentment  of  the  note  for  payment, 
and  the  giving  of  seasonable  notice  of  dishonor.     The  contract 


of  the  parties  was  conditional.  It  was,  as  we  have  seen,  that  if, 
upon  due  demand,  the  note  should  not  be  paid  by  the  corporation 
according  to  its~tenor,  they  woukTcompensate  the  holder,  or  a 
subsequent  indorser  who  is  compelled  to  pay,  provided  the  requis- 
ite proceedings  for  dishonor  were  duly  taken.  That  there  should 
be  demand  of  payment  and  notice  of  dishonor  were  terms  incor- 
porated into  this  contract.  {Rothschild  v.  Carrie,  I  Adol.  &  E. 
[X.  S.]  43).  The  reason  of  the  condition  imposed  by  the  law, 
doubtless,  was  that  the  indorser  might  take  prompt  measures  for 
his  security,  and  the  law  presumed  injury  from  want  of  notice 
of  dishonor.  This  presumption  is  certainly  not  refuted  by  proof 
of  the  solvency  of  the  maker  evidencing  that  no  injury  resulted 
from  want  of  notice  to  the  indorser.  It  is  said,  however,  that 
insolvency  known  to  the  indorser  dispenses  with  the  necessity  of 
notice,  because  nothing  could  be  lost  by  default  of  demand  and 
notice.  We  are  not  prepared  to  concur  in  the  conclusion  of  fact. 
We  have  said  that  the  solvency  of  the  maker,  when  no  possible 
loss  could  result  to  the  indorser  from  want  of  notice,  will  not  excuse 
failure  to  advise  of  dishonor.  Certainly,  in  the  case  of  insol- 
vency notice  is  more  essential,  that  the  party  to  be  charged  may 
take  prompt  measures  for  his  security.  The  insolvency  of  the 
maker  might  possibly  affect  the  sufficiency  of  indemnity,  but  it 
would  not  necessarily  result  in  a  total  failure  of  redress.  That 
would  be  dependent  upon  the  extent  of  the  insolvency.  There 
have  been  cases,  invested  with  peculiar  equities,  in  which  courts 
have  sought  to  evade  this  wholesome  rule  of  the  common  law,  and 
in  which  they  have  permitted  evidence  of  no  injury  to  excuse 
notice.  We  are  not  prepared  to  follow  a  rule  that  will  tend  to 
confusion  in  commercial  law  in  order  to  relieve  a  supposed  hard- 
ship. We  concur  with  the  supreme  court  of  Massachusetts  in 
Farnam  v.  Fowle,  12  Mass.  89,  92,  that  "the  hardship,  if  any, 
arises  from  a  fluctuation  of  opinion  and  an  uncertainty  as  to  rules, 
and  seldom  from  an  inflexible  adherence  to  them,  because,  when 
it  is  once  known  that  exactness  in  the  performance  of  duty  is  to 
be  required,  parties  will  adapt  themselves  to  such  a  state  of  things. 


Phipps  et  al.  v.  Harding  641 

and  be  always  diligent  and  punctual  to  avail  themselves  of  their 
contracts."  And  we  concur  with  Mr.  Daniel  (Daniel,  Neg.  Inst., 
§  1 134)  that  it  is  "a  total  misconception  of  the  obligation  of  an 
indorser  to  place  his  liability  at  all  upon  any  question  involving 
the  pecuniary  circumstances  of  his  principal."  Hardship  is  more 
likely  to  happen  from  speculation  of  courts  and  juries  in  the 
determination  of  the  question  of  fact  whether  injury  has  or  not 
resulted  from  want  of  notice  than  from  strict  adherence  to  the 
law  and  to  the  terms  of  the  contract.  The  better  opinion  is,  and, 
as  we  think,  the  settled  doctrine  of  this  country  is,  that  insolvency 
is  no  excuse  for  failure  of  notice  of  dishonor.  (French's  Ex 'x  v. 
Bank,  4  Cranch,  141 ;  Wilson  v.  Senier,  14  Wis.  380;  San  ford  v. 
Dillaway,  10  Mass.  52;  Farnam  v.  Fowle,  12  Mass.  89;  Bank  v. 
Ayers,  16  Pick.  392;  Bank  v.  Spencer,  6  Mete.  [Mass.]  308). 

Nor  do  we  think  that  the  fact  that  the  plaintiffs  in  error  were 
directors  and  constituted  a  majority  of  the  board  of  directors  of 
the  maker  of  the  note  is  matter  of  moment  or  excuses  failure  of 
notice.    *     *     *     *     * 

It  seems  a  curious  conclusion  that,  because  the  note  is 
indorsed  by  a  majority  of  the  board  of  directors,  therefore  the 
individual  liability  of  each  is  fixed,  and  want  of  notice  of  dis- 
honor excused,  upon  the  ground  that  they  should  act  together  as 
a  majority,  and  so  could  appropriate  funds  of  the  corporation  to 
the  payment  of  the  note.  The  argument  assumes  that  they  must 
act  together  as  a  majority  of  the  board  of  directors;  that  there 
are  funds  of  the  corporation  which  should  have  been  applied  to 
the  payment  of  the  note,  and  were  not  applied,  because  of  the 
non-action  by  the  indorsers.  The  argument  concedes  that,  if  the 
note  were  indorsed  by  a  minority  of  the  directors,  failure  to  give 
notice  would  not  be  excused.  But  by  what  right  does  the  court 
assume  that  the  majority  of  the  directors  indorsing  the  note  will 
or  should  act  together  as  a  majority  in  the  board  upon  any  ques- 
tion affecting  the  interests  of  the  company?  The  argument  pro- 
ceeds upon  the  theory  that  they  should  act  in  their  own  interest 
to  protect  their  liability,  and  possibly  in  opposition  to  the  interests 
of  creditors.  We  think  the  case  is  founded  upon  a  mistaken 
notion  of  the  duties  and  obligations  of  directors.  They  are  only 
to  administer  the  property  of  the  corporation  as  they  find  it.  They 
are  not  obliged  to  furnish  funds  for  the  use  of  their  principal,  nor 
ought  they,  as  directors,  to  protect  their  individual  interests 
against  the  interests  of  their  principal.  Tt  is,  moreover,  to  be 
observed  that,  in  the  case  we  have  now  in  hand,  the  body  of  the 
stockholders,  some  two  months  prior  to  the  maturity  of  this  note, 


642  What  Law  Governs  Contract  of  Maker 

directed  the  officers  of  the  company  to  wind  up  the  affairs  of  the 
company  at  the  earliest  date  particable,  to  collect  all  its  assets, 
sell  all  its  property,  and  apply  the  proceeds  to  the  payment  of  the 
del  its  of  the  company.  The  corporation  then  ceased  to  be  a  going 
concern.  :;:     *     *     * 

It  would  have  been  a  violation  of  duty  for  the  plaintiffs  in 
rnor,  as  directors  of  the  company,  after  this  resolution  of  the 
stockholders  to  have  sought  to  apply  the  assets  of  the  corporation 
to  the  payment  of  this  particular  debt  for  which  they  were  con- 
ditionally liable,  and  thus  to  relieve  themselves  of  liability,  to  the 
detriment  of  the  general  creditors  of  the  company.  Their  duty 
was  to  refrain  from  applying  the  assets  of  the  corporation  to  the 
payment  of  this  note  if  the  assets  of  the  corporation  were  insuffi- 
cient to  pay  all  debts  in  full.  Their  power  by  the  resolution 
became  limited,  and  their  duty  was  to  marshall  all  the  assets  of 
the  corporation,  and  apportion  them  ratably  among  all  the  cred- 
itors of  the  corporation  according  to  their  equality  of  right.  They 
could  not  legally  have  done  that  which  the  supreme  court  of 
Georgia,  in  the  case  referred  to,  holds  that  they  should  have  done, 
and  failure  so  to  do  wrought  legal  excuse  for  failure  of  duty  on 
the  part  of  the  holder  of  the  note.  In  this  respect  this  case  is 
distinguishable  from  the  case  of  Hull  v.  Myers. 

The  court  below  held  that  the  plaintiffs  in  error  were  joint 
makers  of  the  note,  and  therefore  not  entitled  to  notice  of  pro- 
test. We  have  seen  that,  by  the  law  of  Massachusetts  which 
governs  this  contract,  they  were  entitled  to  notice,  notwithstand- 
ing that  relation  to  the  paper.  We  hold  that  failure  of  notice  is 
not  excused  by  anything  apparent  on  the  record,  and  that  the 
plaintiffs  in  error  are  discharged  from  liability  upon  the  paper 
by  reason  of  failure  of  proper  demand  and  of  seasonable  notice 
of  dishonor. 

The  judgment  will  be  reversed,  and  the  cause  remanded, 
with  directions  to  the  court  bcloiv  to  render  judgment 
for  the  plaintiffs  in  error  upon  the  findings. 


The  Junction  Railroad  Company  v.  The  Bank  of  Ashland  (1870), 
12  Wall.  {?9  U.  S.)  226. 

Error  to  the  Circuit  Court  for  the  District  of  Indiana. 

This  was  an  action  of  debt  brought  by  the  Bank  of  Ashland, 
a  corporation  of  Kentucky,  against  the  Junction  Railroad  Com- 
pany, a  corporation  of  Indiana,  to  recover  the  amount  of  nine 


Junction  Railroad  Co.  v.  Bank  of  Ashland  643 

bonds  of  the  latter  company  for  one  thousand  dollars  each,  with 
interest  coupons  attached.  The  bonds  bore  date  the  ist  day  of 
July.  1853,  and  were  payable  to  Caleb  Jones,  or  bearer,  at  the 
office  of  the  Ohio  Life  Insurance  and  Trust  Company,  in  the  city 
of  New  York,  on  the  ist  day  of  July,  1863,  with  interest  at  the 
rate  of  ten  per  cent  per  annum,  payable  half-yearly.  The  declara- 
tion contained  twenty  special  counts  on  the  bonds  and  coupons, 
and  one  common  count  for  money  lent,  paid,  had  and  received, 
and  account  stated.  To  the  last  count  there  was  a  plea  of  ml 
debet,  and  to  the  twenty  special  counts  the  defendant  filed  four 
special  pleas,  the  substance  of  which  was  that  the  bonds  were 
obtained  by  the  plaintiff  from  the  Ohio  Life  Insurance  and  Trust 
Company,  and  that  they  were  originally  negotiated  by  the 
defendant  to  that  company  in  Cincinnati  at  par,  under  the  pre- 
tence of  a  sale  of  the  bonds,  but,  in  truth,  by  way  of  a  loan  of 
money   from  the  Ohio  Trust  Company  to  the   defendant,  upon^  ^. 

interest  at  the  rate  of  ten  per  cent  per  annum — a  rate  which,  as 
stated  in  the  first  special  plea,  the  Ohio  Company,  by  its  charter, 
was  prohibited  from  taking,  and  which,  as  stated  in  the  second 
of  said  pleas,  the  defendant,  by  the  law  which  authorized  it  to  do 
business  in  Ohio,  was  prohibited  from  paying;  and  which,  as 
stated  in  the  third  plea,  was  forbidden  by  the  usury  laws  of  New 
York,  where  the  bonds  were  made  payable.  The  pleas  alleged 
that  the  plaintiff  took  the  bonds  with  notice  of  the  usurious  con- 
sideration. These  pleas  being  demurred  to  and  overruled,  the 
defendant  filed  a  fourth  special  plea  to  the  same  counts,  setting 
forth  substantially  the  same  facts  as  in  the  first  plea,  with  a  more 
specific  averment  of  a  corrupt  and  usurious  agreement.  To  this 
plea  the  plaintiff  replied  that  the  bonds  were  purchased  from  the 
defendant  by  the  Ohio  Life  and  Trust  Company  in  good  faith, 
and  that  the  plaintiff  received  them  in  good  faith,  with  the  assur- 
ance and  belief  that  they  had  been  so  purchased  and  had  not  been 
received  as  security  for  a  loan. 

A  jury  being  waived,  the  cause  was  tried  by  the  court,  which 
made  a  special  finding  of  the  facts ;  the  substance  of  which  was, 
that  the  bonds  declared  on  were,  as  alleged  in  the  pleas,  originally 
negotiated  by  the  defendant  below  to  the  Ohio  Life  Insurance 
and  Trust  Company,  at  its  office  in  Cincinnati,  Ohio,  at  par,  being 
parcel  of  one  hundred  and  twenty-five  bonds  negotiated  together : 
that  the  defendant  proposed  to  sell  the  bonds  to  the  Trust  Com- 
panv,  but  the  latter  refused  to  take  them  unless  some  persons 
other  than  the  defendant  would  guaranty  their  payment,  which 
was  done ;   whereupon  the  negotiation   was  consummated ;   that 


044  What  Law  Governs  Contract  of  Maker 

said  negotiation  did  not  amount  to  a  loan  of  money,  but  to  a  sale 
of  the  bonds,  and  that  the  transaction  involved  nothing  usurious ; 
that  in  1857  the  Trust  Company  transferred  the  bonds  to  the 
plaintiff  below  in  payment  of  a  debt ;  and  that  the  plaintiff  took 
them  in  good  faith,  without  any  notice  of  the  fact  of  usury  or  of 
illegality  in  the  issuing  of  the  bonds,  but  had  notice  of  the  guar- 
anty Upon  these  facts  the  court  below  gave  the  plaintiff  judg- 
ment for  the  full  amount  of  the  bonds  and  interest ;  and  the 
defendant  brought  the  case  here. 

To  enable  the  reader  the  better  to  judge  at  this  point  of  the 
case,  whether  the  judgment  below  was  rightly  or  not  rightly 
given,  it  should  be  mentioned,  that  in  New  York  by  a  statute 
enacted  April  6th,  1850,  a  defense  of  usury  cannot  be  set  up 
by  corporations;  that  by  a  supplement  to  its  character,  dated 
January  29th,  185 1,  the  Junction  Railroad  Company  was  empow- 
ered to  borrow  money  or  sell  its  securities  at  any  rate  of  interest ; 
and  that  by  statute  of  Ohio,  passed  December  15th,  1852,  any 
railroad  company  authorized  to  borrow  money  and  issue  bonds 
for  it,  may  sell  its  bonds  when,  where,  and  at  such  rate  and  price 
as  the  directors  deem  most  advantageous  to  the  road ;  and  finally, 
that  by  a  second  statute  of  the  same  state,  the  Junction  Railroad 
Company  was  made  a  corporation  of  Ohio,  and  authorized  to 
perform  any  act  as  if  originally  incorporated  therein. 

Messrs.  C.  P.  James,  Rufus  King,  and  S.  J.  Thompson,  for 
the  plaintiffs  in  error. 

Messrs.  A.  G.  Porter  and  W.  H.  Wadsworth,  contra. 

Mr.  Justice  Bradley  delivered  the  opinion  of  the  court. 

Unless  this  case  has  become  embarrassed  by  the  pleadings, 
the  facts  as  found  by  the  court  present  a  clear  case  in  favor  of 
the  plaintiff.  If  they  could  have  been  given  in  evidence  under 
the  common  count,  we  should  have  felt  no  hesitation  in  sustaining 
the  judgment  on  that  count  alone,  disregarding  the  special  counts 
and  the  pleadings  thereto.  But  it  has  been  held  that  an  agreement 
under  seal  for  the  payment  of  money  cannot  be  received  to  sup- 
port the  common  money  counts.  It  will  be  necessary,  therefore, 
to  examine  the  case  with  reference  to  the  defences  set  up  in  the 
special  pleas.  In  all  of  them  usury  and  want  of  authority  in  the 
original  parties  to  make  the  negotiation  are  the  points  of  defence 
relied  on. 

With  regard  to  the  question  what  law  is  to  decide  whether 
a  contract  is.  or  is  not,  usurious,  the  general  rule  is  the  law  of  the 
place  where  the  money  is  made  payable ;  although  it  is  also  held 


Junction  Railroad  Co.  v.  Bank  of  Ashland  045 

that  the  parties  may  stipulate  in  accordance  with  the  law  of  the 
place  where  the  contract  is  made.  In  this  case  it  is  conceded  by 
all  the  pleas,  and  shown  by  the  special  finding  of  the  court,  that 
the  place  of  payment  of  the  bonds  in  question  was  the  city  of  New 
York.  By  the  law  of  that  state,  passed  April  6th,  1850  (of  which 
the  Circuit  Court  had  a  right  to  take  judicial  notice),  (Owings  v. 
Hail,  9  Peters,  625),  no  corporation  is  allowed  to  interpose  the 
defence  of  usury.  None  of  the  special  pleas  allege  that  the  place 
of  payment  mentioned  in  the  bonds  was  adopted  as  a  shift  or 
device  to  avoid  the  statute  of  usury.  The  device  complained  of 
was  a  pretended  sale  of  the  bonds,  when  the  transaction  was 
really  a  loan.  Admitting  that  it  was  a  loan,  it  is  not  denied  that 
it  was  made  bona  fide  payable  in  New  York.  Hence  the  pleas 
cannot  stand  as  pleas  of  usury,  properly  so  called.  They  must 
stand,  if  at  all,  on  the  allegation  that  one  or  both  of  the  contract- 
ing parties  was  prohibited  by  law  from  making  such  a  contract. 

It  is  certain,  however,  that  no  such  prohibition  exists  in  the 
case  of  the  defendant.  By  the  supplement  to  its  charter,  passed 
by  the  legislature  of  Indiana  January  29th,  185 1,  it  was  author- 
ized to  borrow  money  or  sell  its  securities  at  any  rate  of  interest 
or  price  it  might  deem  proper.  The  courts  in  Indiana  are  author- 
ized by  the  constitution  of  that  state  to  take  judicial  notice  of 
all  its  laws;  and,  therefore,  the  Circuit  Court  could  take  judicial 
notice  of  this  law.  By  the  law  of  Ohio,  passed  December  15th, 
1852,  any  railroad  company  authorized  to  borrow  money,  and  to 
execute  bonds  or  promissory  notes  therefor,  was  authorized  to 
sell  such  bonds  or  notes  at  such  times  and  in  such  places,  either 
within  or  without  the  State,  and  at  such  rates,  and  for  such  prices, 
as  in  the  opinion  of  the  directors  might  best  advance  the  interests 
of  the  company.  This  is  tantamount  to  a  repeal  of  the  usury 
laws  as  to  such  companies.  And  although  this  law  had  primary 
reference  to  the  railroad  companies  of  Ohio,  yet  the  Supreme 
Court  of  that  State,  in  a  very  sensible  and  judicious  opinion,  has 
decided  that  it  extends  by  comity  to  railroad  companies  of  other 
States  borrowing  money  in  Ohio.  Indeed,  the  second  special  plea 
sets  forth  a  statute  of  Ohio,  in  relation  to  this  very  defendant, 
which  makes  it  a  corporation  of  Ohio,  as  well  as  Indiana,  and 
authorizes  it  to  perform  any  act  within  the  State  of  Ohio  the  same 
as  if  it  had  been  originally  incorporated  therein.  This  act,  it  seems 
to  us,'  rendered  the  exercise  of  comity  hardly  necessary  to  bring 
the  defendant  within  the  privileges  of  the  Ohio  act  of  1852. 

It  must  be  conceded,  therefore,  first,  that  the  transaction  in 
question,  if  a  loan  at  all,  was  not  a  usurious  loan  by  the  law  of 


646  What  Law  Governs  Contract  of  Maker 

the  place  which  governed  the  contract;  and,  secondly,  that  the 
defendant  had  a  perfect  right  to  make  it.  This  observation  is 
applicable  to  all  the  special  pleas,  and  disposes  entirely  of  the 
second  of  them,  in  which  the  defendant  relies  on  its  own  disability 
to  borrow  money  at  a  higher  rate  of  interest  than  seven  per  cent  ; 
and  also  disposes  of  the  third  of  said  pleas,  in  which  the  statute 
of  usury  of  the  State  of  New  York  is  pleaded.  There  remains, 
then,  only  the  first  plea,  in  which  the  point  is  taken  that  the 
Ohio  Life  Insurance  and  Trust  Company  was,  by  its  charter,  pro- 
hibited from  taking  more  than  seven  per  cent  interest.  This  point 
is  fully  presented  in  the  last  plea  on  which  issue  was  taken,  and 
the  defendant  can,  therefore,  receive  no  harm,  though  the  demur- 
rer to  its  first  plea  was  wrongly  sustained.  It  still  had  the  benefit 
of  that  defence  under  the  last  plea ;  and  the  result  is  presented  to 
us  in  the  finding  of  the  court.  That  finding  is,  that  the  transac- 
tion was  not  a  loan  at  all,  but  only  a  sale  of  the  bonds ;  and  it  is 
not  pretended  that  the  Ohio  Life  and  Trust  Company  might  not 
purchase  securities  of  this  sort  at  any  price  it  might  deem  expedi- 
ent. But  the  defendant  contends  that  this  was  a  conclusion  of 
law  on  the  part  of  the  court,  and  that  it  was  erroneous.  Surely 
the  question  whether  a  negotiation  of  bonds  was  a  sale  or  a  loan 
is  ordinarily,  and  prima  facie,  a  question  of  fact.  To  make  it  a 
question  of  law,  some  fact  must  be  admitted  or  proved,  which  is 
irreconcilable  with  one  conclusion  or  the  other.  What  fact  in 
this  case  is  irreconilable  with  the  conclusion  that  this  negotiation 
was  a  sale  ?  The  defendant  contends  that  the  fact  that  the  bonds 
were  its  own  obligations  is  such  a  fact,  and  alleges  that  in  law  a 
party  cannot  sell  its  own  obligations  to  pay  money.  But  it  cer- 
tainly may  do  this,  if  authorized  by  law  to  do  it;  and  it  is  shown 
that  this  very  thing  was  authorized  by  the  laws  of  Ohio,  to  the 
benefit  of  which  the  defendant  was  expressly,  as  well  as  by 
comity,  entitled. 

Again,  the  defendant  alleges  that  the  exaction  of  collateral 
security  for  the  payment  of  the  bonds  was  a  fact  wholly  irrecon- 
cilable with  the  sale.  We  do  not  think  so.  Once  concede  that 
the  obligor  may  sell  its  own  bonds,  what  difference  can  it  make 
how  fully  and  strongly  they  may  be  secured?  The  requirement 
of  guaranties  can  only  amount  to  evidence  of  intention  at  most ; 
the  weight  of  which,  in  connection  with  all  the  circumstances  of 
the  case,  is  to  be  judged  of  by  the  tribunal  to  which  the  facts  are 
submitted.  This  has  been  fairly  done  in  the  present  case,  and  the 
decision  is  against  the  defendant. 


Everett  et  al.  v.  Vendryes  647 

In  this  view  of  the  case  we  do  not  decide  whether  the  demur- 
rer to  the  first  plea  was,  or  was  not,  well  taken.  We  are  disposed 
to  think  that  it  was;  but  do  not  deem  it  necessary  to  incumber 
the  case  with  the  discussion  of  that  question. 

Judgment  affirmed. 


what  law  governs  contract  of  drawer  or  indorser. 
Everett  et  al.  v.  Vendryes  (1859),  19  N.  Y.  436. 

Appeal  from  the  Supreme  Court.  Action  by  the  indorsee 
against  the  drawer  of  a  bill  of  exchange  drawn  by  the  defendant 
at  Carthagena,  in  New  Granada,  upon  the  New  Granada  Canal 
and  Steam  Navigation  Company,  a  corporation  created  by  and 
having  its  principal  office  in  this  state.  It  was  payable  to  the 
order  of  Manuel  Narcisso  Jimenes,  indorsed  by  him  at  Cartha- 
gena, and  was  protested  for  non-acceptance.  The  answer  denied 
the  indorsement  by  Jimenes,  in  general  terms.  On  the  opening 
of  the  trial  before  Mr.  Justice  Davies,  at  the  New  York  Circuit, 
the  defendant  asked  leave  to  amend  his  answer  by  inserting  the 
laws  of  New  Granada  in  respect  to  the  indorsement  of  bills  of 
exchange.  The  motion  was  denied,  and  the  defendant  took  an 
exception.  After  the  plaintiffs  had  concluded  their  proof,  the 
defendant  offered  to  prove  the  laws  of  New  Granada,  and  that 
by  such  laws  the  indorsement  of  Jimenes,  which  was  in  the  form 
usual  in  this  State,  was  void.  The  plaintiffs  objected,  on  the 
ground  that  the  said  laws  were  not  set  forth  in  the  answer;  the 
objection  was  sustained,  and  the  defendant  excepted.  The  defend- 
ant then  renewed  his  motion  to  amend  the  answer,  tendering  the 
proposed  amendment  which  averred  that  by  the  law  of  New  Gran- 
ada the  indorsement  of  any  bill  of  exchange  must  contain,  first, 
the  name  and  surname  of  the  person  to  whom  the  bill  is  trans- 
ferred; second,  if  the  value  or  consideration  be  received  in  cash, 
in  merchandise,  or  if  it  be  in  account ;  third,  the  name  and  sur- 
name of  the  person  from  whom  it  is  received,  or  on  whose  account 
it  is  charged,  if  he  should  not  be  the  same  to  whom  the  bill  is 
transferred ;  fourth,  the  date  on  which  the  indorsement  is  made. 
Also,  that  "an  indorsement  not  expressing  the  value  or  date  does 
not  transfer  the  property  in  the  bill,  and  it  is  to  be  considered  as 
a  simple  commission  for  collection."  The  court  denied  the  motion, 
and  the  defendant  took  an  exception.    The  plaintiff  had  a  verdict 


648  What  Law  Governs  Contract  of  Drawee 

and  judgment,  which  having  been  affirmed  at  general  term  in  the 
first  district,  the  defendant  appealed  to  this  court. 

.\  icholas  Hill,  for  the  appellant. 
/.  T.  Williams,  for  the  respondent. 

Denio,  J. — The  principal  contract,  the  bill  of  exchange  sued 
on,  though  made  in  New  Granada,  was  addressed  to  a  corporation 
legally  resident  in  New  York,  and  was  consequently  payable 
there ;  and,  upon  general  principles,  the  laws  of  this  State  are  to 
be  resorted  to  in  ascertaining  its  nature  and  interpretation,  and 
the  duties  and  liabilities  which  it  created.  This  is  too  well  estab- 
lished to  require  a  reference  to  books.  The  indorsement  was 
also  made  in  New  Granada,  but  that  is  considered  to  be  a  separ- 
ate contract,  and  the  obligations  of  the  parties  to  it  are  to  be 
determined  according  to  the  law  of  the  country  in  which  it  was 
made;  so  that  if  this  was  a  question  between  indorser  and  indor- 
see, we  should  have  to  resort  to  the  laws  of  New  Granada  to 
ascertain  what  obligation  Jimenes  assumed  by  indorsing  the  bill 
to  the  plaintiffs.  (Ay mar  v.  Sheldon,  12  Wend.,  439).  But  the 
action  is  not  against  Jimenes,  the  indorser,  but  against  the 
drawer ;  and  it  is  the  effect  of  the  original  contract  and  not  of  the 
auxiliary  one,  which  is  in  question.  By  drawing  the  bill,  the 
defendant  undertook  that  the  drawees  in  New  York  would  pay  it 
to  Jimenes,  the  payee,  or  to  his  order,  that  is,  to  any  person  to 
whom  it  should  be  indorsed ;  and  that  if  the  drawees  did  not  so 
pay  it  he  would  himself  make  such  payment.  The  plaintiffs  claim 
to  be  indorsees,  according  to  the  legal  effect  of  the  bill ;  and  the 
question  is,  which  law  is  to  govern  in  determining  whether  they 
have  acquired  that  character,  that  of  New  Granada  or  New  York  ? 
If  the  former,  the  plaintiffs  must  fail,  because  they  have  not  been 
constituted  indorsees  with  the  formalities  which  the  laws  of  New 
Granada  have  prescribed  for  transferring  a  bill  by  indorsement. 
But  the  indorsement  is  in  due  form  according  to  the  laws  of  New 
York.  I  have  not  been  able  to  find  any  authority  for  such  a  case ; 
but  I  am  of  opinion  that  upon  the  reason  of  the  thing,  the  laws 
of  this  state  should  be  held  to  control.  These  laws  are  to  be 
resorted  to  in  determining  the  legal  meaning  and  effect  and  the 
obligations  of  the  contract.  All  the  cases  agree  in  this.  In  this 
case  the  point  to  be  determined  was,  whether  the  plaintiffs  were 
indorsees  and  entitled  to  receive  the  amount  of  the  bill  of  the 
drawees.  This  was  to  be  determined,  in  the  first  instance,  when 
the  bill  was  presented  for  acceptance  and  payment  in  New  York. 
The  plaintiffs'  title  was  written  on  the  bill.  The  question  was, 
whether  it  made  them  indorsees  according  to  the  effect  of  the 


Aymar  v.  Sheldon  et  al.  649 

words  of  negotiability  contained  in  the  bill  itself.  Those  words 
and  the  actual  indorsement  were  to  be  compared,  and  the  legal 
rules  to  be  employed  in  making  that  comparison,  were  found  in 
the  law  merchant  of  the  state  of  New  York;  and  by  those  rules 
the  indorsement  was  precisely  such  a  one  as  the  bill  contemplated. 

Besides,  it  is  reasonable  to  suppose  that,  in  addressing  this 
bill  to  the  drawees  in  New  York,  the  defendant  contemplated  that 
they  would  understand  the  words  of  negotiability  according  to 
the  law  of  their  own  country ;  they  would  naturally  be  acquainted 
with  that,  while  they  would,  in  all  probability,  be  ignorant  with 
the  commercial  code  of  New  Granada.  When,  therefore,  he 
directed  the  drawees  to  pay  to  the  order  of  the  payee,  he  must  be 
intended  to  contemplate  that  whatever  would  be  understood  in 
New  York  to  be  the  payee's  order,  was  the  thing  which  he 
intended  by  that  expression  in  the  bill. 

The  case  of  Trimblcy  v.  Vignicr  (i  Bing.  N.  C.  151)  is  not 
in  hostility  to  this  conclusion.  That  was  the  case  of  a  note  made 
in  Paris,  the  maker  and  payee  being  domiciled  there ;  and  no 
place  of  payment  being  made,  it  was  payable  at  the  residence 
of  the  maker.  One  claiming  to  be  an  indorsee  sued  the  maker 
in  England ;  but  the  indorsement  to  him  was  in  the  common 
blank  form  used  in  Great  Britain  and  in  this  country,  while  the 
French  Commercial  Code,  like  that  of  New  Granada,  required 
the  indorsement  of  a  bill  or  note  to  be  dated,  and  to  express  the 
consideration,  and  declared  that  if  it  failed  to  conform  to  these 
requirements  it  should  not  transfer  the  paper,  but  should  only 
amount  to  a  power  of  attorney.  The  court  held  that  the  law  of 
France  governed  the  contract,  and  that  the  plaintiff  had  not  made 
title  to  the  note.  Had  it  been  made  payable  in  England,  I  pre- 
sume it  would  have  been  held  that  the  law  of  that  country 
furnished  the  rule  for  determining  whether  the  indorsement  was 
sufficient. 

For  the  reasons  this  briefly  stated,  I  am  of  opinion  that  this 
case  was  rightly  decided  in  the  Supreme  Court,  and  that  the 
judgment  should  be  affirmed.  Judgment  affirmed. 


Aymar  v.  Sheldon  et  al.   (1834),  12  Wend.  429. 

Error  from  the  superior  court  of  the  city  of  New  York. 
Sheldon  and  others,  as  endorsees,  brought  a  suit  against  B.  &  I. 
Q.  Aymar,  as  endorsers  of  a  bill  of  exchange,  bearing  date  4th 
June,  1830,  drawn  by  V.  Cassaigne  &  Co.  St.  Pierre,  at  Mar- 
tinique, on  L'Hotelier  Freres.  at  Bordeaux  in  France,  for  4000 


b50  What  Law  Governs  Contract  of  Drawer 

francs,  payable  at  24  days  sight,  to  the  order  of  B.  Ay  mar  & 
Co.,  the  name  of  the  firm  of  B.  &  I.  O.  Aymar.  The  plaintiffs 
set  forth  the  endorsement  of  the  bill  of  exchange  at  the  city  of 
New  York,  where,  they  averred,  that  they  and  the  defendants, 
all  being  citizens  of  the  United  States  at  the  time  of  the  endorse- 
ment, respectively,  dwelt  and  had  their  homes ;  and  then  aver  that 
on  the  nth  August,  1830,  the  bill  of  exchange  was  presented 
to  L'Hotelier  Freres,  at  Bordeaux,  for  acceptance,  according 
to  the  custom  of  merchants,  and  that  they  refused  to  accept; 
whereupon  the  bill  was  duly  protested  for  non-acceptance, 
and  notice  given  to  the  defendants.  The  defendant  pleaded, 
1.  X on  assumpsit;  2.  That  the  bill  declared  on  was  made  and 
drawn  in  the  island  of  Martinique,  a  country  then,  since  and 
now,  under  the  dominion  and  government  of  the  king  of  France, 
by  persons  there  dwelling  subjects  of  the  king  of  France ;  and 
that  the  bill,  according  to  its  tenor  was  payable  at  Paris  in  the 
kingdom  of  France,  by  persons  then  and  still  residing  and  dwell- 
ing at  Bordeaux,  in  the  kingdom  of  France,  subjects  of  the  king 
of  France,  to  wit,  on,  &c.  at  &c. ;  that  the  island  of  Martinique, 
as  well  as  Paris  and  Bordeaux,  and  the  persons  therein  respec- 
tively residing,  and  the  drawers  and  drawees  were  subject  and 
governed  by  the  laws  of  the  kingdom  of  France,  there  and  then, 
and  still  existing  and  in  force,  to  wit,  on,  &c.  at  &c. ;  that  by  the 
laws  of  France,  then  and  still  at  the  several  places  in  the  plea 
mentioned,  existing  and  in  force,  it  is  established,  enacted  and 
provided,  in  relation  to  bills  of  exchange  drawn  and  payable  in 
the  countries  subject  to  the  laws  of  France,  among  other  things, 
in  manner  and  form  following,  namely :  The  drawer  and  endor- 
sers of  a  bill  of  exchange  are  severally  liable  for  its  acceptance 
and  payment  at  the  time  it  falls  due.  {Code  de  Commerce, 
119).  The  refusal  of  acceptance  is  evidenced  by  an  act  denomin- 
ated protest  for  non-acceptance,  id.  120.  On  notice  of  the  pro- 
test for  non-acceptance,  the  endorsers  and  drawer  are  respectively 
bound  to  give  security,  to  secure  the  payment  of  the  bill  at  the 
time  it  falls  due,  or  to  effect  reimbursement  of  it,  with  the  expense 
of  protest  and  re-exchange.  The  time  when  a  bill  of  exchange 
becomes  due,  if  payable  at  one  or  more  days  after  sight,  is  fixed 
by  the  date  of  the  acceptance,  or  by  the  day  of  the  protest  for  non- 
acceptance.  The  holder  is  not  excused  the  protest  for  non-pay- 
ment by  the  protest  for  non-acceptance.  After  the  expiration  of 
the  above  periods,  (certain  periods  specified  in  the  code,  and 
which,  in  the  case  of  a  bill  drawn  in  the  West  Indies  on  France, 
is  one  year,)  for  the  presentment  of  bills  at  sight,  or  one  or  more 


Aymak  v.  Sheldon  kt  al.  651 

days  after  sight,  for  protest  of  non-payment,  the  holder  of  the 
bill  loses  all  his  claim  against  the  endorsers,  &c.  setting  forth, 
besides  the  above,  a  variety  of  other  provisions  of  the  French 
code,  relative  to  bills  of  exchange,  and  then  averring,  that 
although  at  the  time  of  the  commencement  of  the  action  of  the 
plaintiffs,  twenty-four  days  after  sight  of  the  bill  of  exchange 
declared  on  had  elapsed,  from  the  day  when  the  same  was  alleged 
to  have  been  protested  for  non-acceptance,  yet  no  protest  of  the 
said  bill  for  non-payment  had  been  made,  concluding  with  a  veri- 
fication and  prayer  of  judgment.  3.  The  defendants  pleaded,  after 
referring  to  the  matter  of  inducement  stated  in  the  second  plea, 
that  on  notice  of  protest  for  non-acceptance,  as  alleged  in  the  dec- 
laration, they  were  ready  and  willing  to  give  security;  and  offered 
to  the  plaintiffs  to  give  security,  according  to  the  true  intent  and 
meaning  of  the  laws  of  France,  to  secure  payment  of  the  bill  at 
the  time  when  the  same  should  fall  due,  to  wit,  on,  &c.  at,  &c, 
concluding  as  in  last  plea.  To  the  second  plea  the  plaintiffs 
demurred,  and  took  issue  upon  the  third,  denying  that  the  defend- 
ants did  offer  security,  &c. 

The  superior  court,  on  the  argument  of  the  demurrer, 
adjudged  the  second  plea  to  be  bad;  after  which  the  issues  of 
fact  were  tried.  The  jury  found  for  the  plaintiffs,  on  the  plea  of 
non-assumpsit,  and  assessed  their  damages  at  $895.52,  and  found 
a  verdict  for  the  defendants  on  the  third  plea.  Notwithstanding 
which  last  finding,  the  court  gave  judgment  for  the  plaintiffs  on 
the  whole  record.     The  defendants  sued  out  a  writ  of  error. 

D.  Lord,  jun.,  for  plaintiffs  in  error. 

D.  D.  Field  &  R.  Sedgwick,  for  defendants  in  error. 

By  the  court : 

Nelson,  J. — The  only  material  question  arising  in  this  case  is,  I 
whether  the  steps  necessary  on  the  part  of  the  holders  of  the  bill 
of  exchange  in  question,  to  subject  the  endorsers  upon  default  of 
the  drawees  to  accept,  must  be  determined  by  the  French  law,  or 
the  law  of  this  state?  If  by  our  law,  the  plaintiffs  below  are 
entitled  to  retain  the  judgment;  if  by  the  law  of  France,  as  set 
out  and  admitted  in  the  pleadings,  the  judgment  must  be  reversed. 

We  have  not  been  referred  to  any  case,  nor  have  any  been 
found  in  our  researches,  in  which  the  point  now  presented  has 
been  examined  or  adjudged.  But  there  are  some  familiar  prin- 
ciples belonging  to  the  law  merchant,  or  applicable  to  bills  of 
exchange  and  promissory  notes,  which  we  think  are  decisive  of  it. 
The  persons  in  whose  favor  the  bill  was  drawn  were  bound  to 


652  What  Law  Governs  Contract  of  Drawer 

present  it  for  acceptance  and  for  payment,  according  to  the  law 
of  France,  as  it  was  drawn  and  payable  in  French  territories ;  and 
it  the  rules  of  law  governing-  them  were  applicable  to  the  endorsers 
and  endorsees  in  this  case,  the  recovery  below  could  not  be  sus- 
tained, because  presentment  for  payment  would  have  been  essen- 
tial even  after  protest  for  non-acceptance.  No  principle,  how- 
ever,  seems  more  fully  settled,  or  better  understood  in  commercial 
law,  than  that  the  contract  of  the  endorser  is  a  new  and  indepen- 
dent contract,  and  that  the  extent  of  his  obligations  is  determined 
by  it.  The  transfer  by  endorsement  is  equivalent  in  effect  to  the 
drawing  of  a  hill,  the  endorser  being  in  almost  every  respect  con- 
sidered as  a  new  drawer.  (Chitty  on  Bills,  142;  3  East,  482;  2 
P.urr.  674,  5 ;  1  Str.  441 ;  Selw.  N.  P.  256).  On  this  ground,  the 
rate  of  damages  in  an  action  against  the  endorser  is  governed  by 
the  law  of  the  place  where  the  endorsement  is  made,  being  regu- 
lated by  the  lex  loci  contractus.  (6  Cranch,  21 ;  2  Kent's  Comm. 
460;  4  Johns.  R.  119).  ThaTthe  nature  and  extent  of  the  lia- 
bilities of  the  drawer  or  endorser  are  to  be  determined  according 
to  the  law  of  the  place  where  the  bill  is  drawn  or  endorsement 
made,  has  been  adjudged  both  here  and  in  England.  In  Hix  v. 
Brozvn,  12  Johns.  R.  142,  the  bill  was  drawn  by  the  defendant,  at 
New  Orleans,  in  favor  of  the  plaintiff,  upon  a  house  in  Philadel- 
phia ;  it  was  protested  for  non-acceptance,  and  due  notice  given : 
the  defendant  obtained  a  discharge  under  the  insolvent  laws  of 
New  Orleans  after  such  notice,  by  which  he  was  exonerated  from 
all  debts  previously  contracted,  and  in  that  state,  of  course  from 
the  bill  in  question.  He  pleaded  his  discharge  here,  and  the  court 
say,  "it  seems  to  be  well  settled,  both  in  our  own  and  in  the  Eng- 
lish courts,  that  the  discharge  is  to  operate  according  to  the  lex 
loci  upon  the  contract  where  it  was  made  or  to  be  executed.  The 
contract  in  this  case  originated  in  New  Orleans,  and  had  it  not 
been  for  the  circumstance  of  the  bill  being  drawn  upon  a  person 
in  another  state,  there  could  be  no  doubt  but  the  discharge  would 
reach  this  contract ;  and  this  circumstance  can  make  no  difference, 
as  the  demand  is  against  the  defendant  as  drawer  of  the  bill,  in 
consequence  of  the  non-acceptance.  The  whole  contract  or 
responsibility  of  the  drawer  was  entered  into  and  incurred  in 
New  Orleans.  The  case  of  Peters  v.  Brown,  5  East,  124,  contains 
a  similar  principle.  See  also  3  Mass.  R.  81 ;  Van  Raugh  v.  Van 
Arsdaln,  3  Caines,  154;  t  Cowen,  107;  6  Cranch,  221  ;  4  Cowen, 
512,  n. 

The  contract  of  endorsement  was  made  in  this  case,  and  the 
execution  of  it  contemplated  by  the  parties  in  this  state ;  and  it  is 


Aymar  v.  Sheldon  et  al.  653 

therefore  to  be  construed  according  to  the  laws  of  New  York. 
The  defendants  below,  by  it,  here  engage  that  the  drawees  will 
accept  and  pay  the  bill  on  due  presentment,  or,  in  case  of  their 
default  and  notice,  that  they  will  pay  it.  All  the  cases  which 
determine  that  the  nature  and  extent  of  the  obligation  of  the 
drawer  are  to  be  ascertained  and  settled  according  to  the  law  of 
the  place  where  the  bill  is  drawn,  are  equally  applicable  to  the 
endorser;  for,  in  respect  to  the  holder,  he  is  a  drawer.  Adopting 
this  rule  and  construction,  it  follows  that  the  law  of  New  York 
must  settle  the  liability  of  the  defendants  below.  The  bill  in  this 
case  is  payable  24  days  after  sight,  and  must  be  presented  for 
acceptance ;  and  it  is  well  settled  by  our  law,  that  the  holder  may 
have  immediate  recourse  against  the  endorser  for  the  default  of 
the  drawee  in  this  respect.  (3  Johns.  R.  202 ;  Chitty  on  Bills,  231, 
and  cases  there  cited). 

Upon  the  principle  that  the  rights  and  obligations  of  the  par- 
ties are  to  be  determined  by  the  law  of  the  place  to  which  they 
had  reference  in  making  the  contract,  there  are  some  steps  which 
the  holder  must  take  according  to  the  law  of  the  place  on  which 
the  bill  is  drawn.  It  must  be  presented  for  payment  when  due, 
having  regard  to  the  number  of  days  of  grace  there,  as  the 
drawee  is  under  obligation  to  pay  only  according  to  such  calcula- 
tion ;  and  it  is  therefore  to  be  presumed  that  the  parties  had  refer- 
ence to  it.  So  the  protest  must  be  according  to  the  same  law 
which  is  not  only  convenient,  but  grows  out  of  the  necessity  of 
the  case.  The  notice  however,  must  be  given  according  to  the 
law  of  the  place  where  the  contract  of  the  drawer  or  endorser, 
as  the  cause  may  be,  was  made,  such  being  an  implied  condition. 
(Chitty  on  Bills,  266,  93,  217;  Bayley,  28;  Story's  Conflicts  of 
Laws,  298). 

The  contract  of  the  drawers  in  this  case,  according  to  the 
French  law,  was,  that  if  the  holder  would  present  the  bill  for 
acceptance  within  one  year  from  date,  it  being  drawn  in  the  West 
Indies,  and  it  was  not  accepted,  and  was  duly  protested  and  notice 
given  of  the  protest,  he  would  give  security  to  pay  it,  and  pay 
the  same  if  default  was  also  made  in  the  payment  by  the 
drawee  after  protest  and  notice.  This  is  the  contract  of  the 
drawers,  according  to  this  law,  and  the  counsel  for  the  plaintiffs 
in  error  insists  that  it  is  also  the  implied  contract  of  the  endorser 
in  this  state.  But  this  cannot  be,  unless  the  endorsement  is 
deemed  an  adoption  of  the  original  contract  of  the  drawers,  to  be 
regulated  by  the  law  governing  the  drawers,  without  regard  to 
the  place  where  the  endorsement  is  made.     We  have  seen  that 


054  What  Law  Governs  Procedure  and  Remedy 

this  is  not  so;  that  notice  must  be  given  according  to  the  law  of 
the  place  of  endorsement;  and  if,  according  to  it,  notice  of  non- 
payment is  not  required,  none  of  course  is  necessary  to  charge 
the-  endorser.  But  if  the  above  position  of  the  plaintiffs  in  error 
be  correct,  notice  could  not  then  be  dispensed  with,  the  law  of 
the  drawer  controling.  The  above  position  of  the  counsel  would 
also  be  irreconcileable  with  the  principle,  that  the  endorsement 
is  equivalent  to  a  new  bill,  drawn  upon  the  same  drawee;  for 
then  the  rights  and  liabilities  of  the  endorser  must  be  governed 
by  the  law  of  the  place  of  the  contract,  in  like  manner  as  those 
of:  the  drawer  are  to  be  governed  by  the  laws  of  the  place  where 
his  contract  was  made.  Both  stand  upon  the  same  footing  in  this 
respect,  each  to  be  charged  according  to  the  laws  of  the  country 
in  which  they  were  at  the  time  of  entering  into  their  respective 
obligations. 

I  am  aware  that  this  conclusion  may  operate  harshly  upon 
the  endorsers  in  this  case,  as  they  may  not  be  enabled  to  have 
recourse  over  on  the  drawers.  'But  this  grows  out  of  the  peculiar- 
ity of  the  commercial  code  which  France  has  seen  fit  to  adopt  for 
herself,  materially  differing  from  that  known  to  the  law  merchant. 
We  cannot  break  in  upon  the  settled  principles  of  our  commercial 
law,  to  accommodate  them  to  those  of  France  or  any  other  coun- 
try. It  would  involve  them  in  great  confusion.  The  endorser, 
however,  can  always  protect  himself  by  special  endorsement, 
requiring  the  holder  to  take  the  steps  necessary  according  to  the 
French  law,  to  charge  the  drawer.  It  is  the  business  of  the 
holder,  without  such  an  endorsement,  only  to  take  such  measures 
as  are  necessary  to  charge  those  to  whom  he  intends  to  look  for 
payment.  Judgment  affirmed. 

WHAT  LAW   GOVERNS  PROCEDURE  AND  REMEDY. 

Collins  v.  Manville  {1897),  170  III.  614. 

Writ  of  error  to  the  Appellate  Court  for  the  First  District ; 
—heard  in  that  court  on  writ  of  error  to  the  Circuit  Court  of 
Cook  county ;  the  Hon.  E.  F.  Dunne,  Judge,  presiding. 

Oliver  &  Mccartncy,  for  plaintiff  in  error. 

Pcckham  &  Brown,  for  defendant  in  error. 

Mr.  Justice  Cartwrigiit  delivered  the  opinion  of  the  court: 

In  the  Circuit  Court  of  Cook  county  the  defendant  in  error 
recovered  a  judgment  for  $8280.80  upon  a  promissory  note  pay- 
able to  his  order,  dated  September  I,   1886,  for  $5250,  payable 


Collins  v.   Manville  655 

twelve  months  after  date,  with  interest  at  the  rate  of  six  per 
cent  per  annum,  and  the  judgment  has  been  affirmed  b>  the 
Appellate  Court. 

The  note  was  made  and  executed  in  the  State  of  New  York, 
and  the  cause  of  action  arose  there.  Defendant  has  been  a  citizen 
and  resident  of  that  state  since  the  year  1883,  and  plaintiff  lived 
in  New  Jersey  when  the  note  was  made  and  until  December,  1886, 
since  which  time  he  has  been  a  citizen  of  Colorado.  The  time 
within  which  suit  could  be  brought  in  this  State  was  therefore 
governed  by  section  20  of  our  statute  in  regard  to  limitations,  and 
if  by  the  laws  of  the  State  of  New  York  an  action  on  the  note 
could  not  be  maintained  by  reason  of  the  lapse  of  time,  the  action 
could  not  be  maintained  in  this  state.  That  defense  was  pleaded 
and  interposed  at  the  trial,  and  the  New  York  statutes  were 
admitted  in  evidence  by  written  stipulation.  The  New  York  code 
requires  that  an  action  of  this  kind  must  be  commenced  within 
six  years  after  the  cause  of  action  has  accrued,  and  this  suit  was 
commenced  August  31,  1893,  by  plaintiff  filing  a  precipe  and  dec- 
laration, and  causing  a  summons  to  be  issued  and  given  to  the 
sheriff,  directing  him  to  summon  the  defendant  to  appear  at  the 
next  term  of  the  Circuit  Court.  An  action  on  the  note  was  not 
barred  at  that  time  in  the  state  of  New  York,  and  under  our 
statute  such  action  could  be  maintained  here.  The  issuing  of  the 
summons  and  delivery  to  the  sheriff  for  service  were  the  com- 
mencement of  action  in  this  state.  (Fcade  v.  Simpson,  1  Scam. 
30;  Chicago  and  Northivestern  Railway  Co.  v.  Jenkins,  103  111. 
588 ;  Schroeder  v.  Merchants  and  Mechanics'  Ins.  Co.,  104  id.  71  ; 
Fairbanks  v.  Far-well,  141  id.  354)  • 

The  court  instructed  the  jury,  in  substance,  that  if  the  plain- 
tiff, within  six  years  from  the  maturity  of  the  note,  caused  sum- 
mons to  be  issued  and  given  to  the  sheriff  of  Cook  county  for 
service,  then  the  action  was  not  barred.  It  is  claimed  that  this 
instruction  was  erroneous  because  of  what  occurred  after  the  com- 
mencement of  the  suit,  and  by  reason  of  further  provisions  of  the 
New  York  code  as  to  what  should  be  deemed  the  commencement 
of  an  action  in  that  state.  The  provisions  in  question  are,  in  sub- 
stance, that  an  action  is  commenced,  within  the  meaning  of  the 
Limitation  act  of  New  York,  when  the  summons  is  served  on  the 
defendant,  or  on  a  co-defendant  who  is  a  joint  contractor  or  other- 
wise united  in  interest  with  him,  and  that  an  attempt  to  commence 
an  action  is  equivalent  to  the  commencement  thereof  when  the 
summons  is  delivered  to  the  sheriff  of  the  county  in  which  the 
defendant  resides  or  last  resided  ;  but  in  order  to  entitle  the  plain- 


650  What  Law  Governs  Procedure  and  Remedy 

tiff  to  the  benefit  of  this  last  provision  the  delivery  must  be  fol- 
lowed, within  sixty  days  after  the  expiration  of  the  time  limited 
for  the  actual  commencement  of  the  action,  by  personal  service 
upon  the  defendant  or  by  the  first  publication  of  the  summons 
against  him  pursuant  to  an  order  for  service  upon  him  in  that 
manner.  In  this  case  there  was  no  service  on  the  defendant 
within  sixty  days  after  the  expiration  of  the  six  years.  The  sum- 
mons was  returned  by  the  sheriff  "not  found,"  and  successive 
writs  issued  for  each  succeeding  term,  were  returned  in  like 
manner  until  personal  service  was  obtained,  five  months  after  the 
suit  was  commenced. 

It  is  argued  that  although  the  suit  was  commenced  in  time 
in  this  state  and  when  it  might  have  been  brought  in  New  York, 
yet  because  the  New  York  code  provides  for  an  abatement  of 
the  action  on  account  of  a  subsequent  event  which  prevents  the 
plaintiff  from  maintaining  or  continuing  it,  the  same  rule  of  pro- 
cedure must  be  adopted  here.  To  this  proposition  we  cannot 
assent.  The  form  and  mode  of  procedure  must  be  according  to 
the  rules  of  the  state.  If  it  were  a  question  of  when  an  action 
had  been  commenced  in  the  State  of  New  York,  the  laws  of  that 
State  would  govern  ;  but  the  question  here  is,  when  was  the  action 
commenced  in  this  State?— and  as  to  that  our  laws  must  control. 
The  question  is  purely  one  of  remedy  and  procedure,  governed 
by  the  law  of  the  forum.  The  laws  of  each  State  require  that  the 
action  shall  be  commenced  within  a  certain  time,  and  it  was  com- 
menced within  that  time.  It  would  not  only  be  contrary  to  all 
established  rules  to  adopt  the  procedure  of  the  New  York  code 
and  abate  the  action  lawfully  commenced,  but  also  most  unjust, 
for  the  reason  that  the  New  York  code  provides  a  method  by 
which  the  plaintiff  could  maintain  his  action  by  publication  of 
summons  within  the  time.  Our  law  does  not  permit  such  service 
in  an  action  of  assumpsit,  and  to  apply  the  New  York  rule  would 
be  to  deprive  him  of  the  benefit  of  that  rule  as  to  service  by  publi- 
cation, and  cut  off  his  rights  by  means  of  the  other  branch  of  the 
rule. 

The  only  other  complaint  is,  that  the  court  refused  to  grant 
a  new  trial  on  account  of  newly  discovered  evidence.  The  evi- 
dence was  of  a  cumulative  character  and  not  conclusive  of  the 
rights  of  the  parties,  and  the  court  did  not  err  in  denying  the 
motion  for  a  new  trial. 

The  judgment  of  the  Appellate  Court  will  be  affirmed. 

Judgment  affirmed. 


Obear  v.   First  National  Bank  65< 


Obcar  v.  The  First  Nat.  Bank  (1895),  97  Ga.  587. 

Complaint    on    note.     Before    Judge    Westmoreland.     City 
court  of  Atlanta.    May  term,  1895. 

Mines  &  Hale,  for  plaintiff  in  error. 
James  H.  Gilbert,  contra. 

Simmons,  Chief  Justice. — This  was  an  action  upon  a  promis- 
sory note,  not  under  seal,  which  was  executed  and  by  its  terms 
made  payable  in  the  state  of  Alabama.  The  note  was  dated  Feb- 
ruary 9,  1888,  and  was  payable  on  demand.  The  suit  was  filed 
April  17,  1894.  Upon  the  note  were  unsigned  entries  reciting  the 
payment  of  certain  amounts  thereon  on  August  7  and  August  23, 
1888.  By  an  amendment  to  the  declaration  the  plaintiff  alleged 
that  these  amounts  were  paid  on  the  dates  mentioned,  and  that 
by  the  law  of  Alabama  partial  payments  upon  a  note  not  barred 
by  the  statute  of  limitations  operate  as  a  recognition  of  the  debt 
and  establish  a  new  date  for  the  commencement  of  the  period  of 
limitation.  It  did  not  appear  by  whom  the  entries  on  the  note 
were  made.  The  defendant  demurred  generally  to  the  declaration 
as  amended,  and  demurred  to  the  amendment  on  the  ground  that 
the  facts  therein  stated  do  not  take  the  note  out  of  the  statute  of 
limitations,  and  that  the  case  is  governed  by  the  statute  of  limita- 
tions of  Georgia,  and  not  that  of  Alabama.  The  defendant  also 
moved  to  dismiss  the  suit  because  it  appeared  to  be  barred  by  the 
statute  of  limitations  of  this  State.  The  demurrer  and  the  motion 
to  dismiss  were  both  overruled,  and  to  these  rulings  the  defendant 
excepted. 

In  this  State  all  actions  upon  promissory  notes  not  under  seal 
must  be  brought  within  six  years  after  the  same  become  due  and 
payable.  (Code,  §2917).  The  note  sued  upon  was  payable  on 
demand,  and  therefore  was  due  immediately.  (Code,  §2791). 
In  order  for  a  partial  payment  upon  a  note  to  constitute  a  new 
point  from  which  the  period  of  limitations  will  begin  to  run,  the 
payment  must  be  entered  upon  the  note,  and  the  entry  must  be 
made  in  the  debtor's  own  handwriting,  or  subscribed  by  him,  or 
some  one  authorized  by  him.  (Code,  §§2934,  2935).  And  the 
holder  of  the  note  cannot  be  the  agent  of  the  debtor  to  make  such 
an  entry.  (Shumate  v.  Williamson,  34  Ga.  245;  Wright  v.  Bess- 
man,  55  Ga.  187).  If,  therefore,  the  case  is  controlled  entirely  bv 
the  law  of  this  state,  the  action  was  barred,  it  appearing  that  more 
than   six  years  had  elapsed  from  the  time  the  right  of  action 


658  What  Law  Governs  Procedure  and  Remedy 

accrued  until  the  suit  was  filed,  and  it  not  appearing  that  either 
of  the  alleged  payments  on  the  note  was  entered  thereon  by  the 
debtor  or  by  any  person  authorized  by  him. 

It  is  well  settled  that  the  limitation  of  actions  is  controlled 
by  the  lex  fori,  and  not  by  the  law  of  the  place  where  the  contract 
was  made  or  is  to  be  performed.  This  was  conceded ;  but  it  was 
contended  that  the  rule  is  different  as  to  the  statute  of  frauds  and 
laws  of  that  nature  ;  and  that  while  the  period  of  limitation  in 
this  case  is  that  fixed  by  the  law  of  Georgia,  the  law  of  Alabama 
governs  with  regard  to  the  effect  of  partial  payments  in  consti- 
tuting a  new  point  for  the  commencement  of  that  period;  and 
such  payments  being  of  themselves  sufficient  for  this  purpose 
under  the  law  of  Alabama,  it  was  not  necessary  that  they  should 
be  entered  on  the  note  in  the  manner  prescribed  by  the  law  of 
Georgia.  In  support  of  this  contention,  counsel  relied  upon  sec- 
tion 8  of  the  code  of  this  state,  which  declares  that  "the  validity, 
form  and  effect  of  all  writings  or  contracts  are  determined  by  the 
laws  of  the  place  where  executed." 

We  do  not  agree  with  counsel  in  this  contention.  This  pro- 
vision of  the  code  is  declaratory  of  a  rule  which  prevails  univer- 
sally among  civilized  nations,  and  which  is  applied  in  determining 
as  to  the  nature,  validity  and  interpretation  of  contracts ;  and  it  is 
not  to  be  so  construed  as  to  conflict  with  the  rule,  equally  well 
established,  that  matters  respecting  remedies  on  contracts,  such  as 
the  mode  of  procedure  and  proof,  and  the  time  within  which  suit 
shall  be  brought,  are  regulated  by  the  law  of  the  forum,  or  place 
where  the  suit  is  brought.  A  law  prescribing  the  manner  in  which 
a  new  promise,  or  a  payment  from  which  such  a  promise  will  be 
implied,  shall  be  evidenced  in  order  to  extend  the  period  within 
which  suit  may  be  brought  upon  a  contract,  relates  to  the  remedy, 
and  does  not  affect  the  intrinsic  validity  of  the  promise.  The 
question  of  what  evidence  shall  be  required  for  this  purpose  in  an 
action  upon  the  contract  is  one  thing ;  the  question  whether  a 
promise  not  so  evidenced  is  valid  or  not  is  another  and  different 
thing.  The  statute  referred  to  is  in  the  nature  of  a  statute  of 
frauds,  its  object  being  the  prevention  of  fraud  and  perjury  and 
the  avoidance  of  the  uncertainties  to  which  parol  evidence  is 
exposed  (Wcttkins  v.  Harris,  83  Ga.  683).  and  it  should  be 
applied  as  well  in  cases  like  the  present  as  in  cases  where  such  a 
promise  is  alleged  to  have  been  made  in  this  State,  if  it  he  possible 
to  do  so  without  holding  the  promise  itself  void.  This  we  think 
can  be  done;  and  in  this  view  we  are  supported  by  various 
decisions  upon  the  statute  of  frauds,  both  in  England  and  in  this 


Oeear  v.   First  National  Bank  659 

country,  and  by  the  authority  of  leading  text-writers.  Upon  the 
ground  that  compliance  with  the  requirements  of  the  statute  does 
not  constitute  the  contract,  but  that  the  statute  presupposes  an 
existing  lawful  contract,  and  affects  only  the  remedy  for  the  viola- 
tion of  the  contract,  it  is  held  that  where  a  contract  within  the 
,  statute  is,  by  the  laws  of  the  country  where  it  is  made  and  to  be  ' 
'  executed,  valid  and  enforceable,  still  no  action  can  be  maintained  | 
Upon  it  in  the  courts  of  the  country  where  the  statute  prevails,  y 
unless  its  requirements  be  satisfied.  See  Browne,  Statute  of  J 
Frauds  (5  ed.),  §§  115a,  136,  and  cases  cited ;  especially  the  lead- 
ing English  case  on  this  subject,  Leroux  v.  Brown,  12  C.  B.  801, 
74  Eng.  Com.  Law  Rep.  800,  where  the  question  was  argued  at 
some  length,  and  upon  the  ground  above  stated  it  was  unan- 
imously held  by  the  judges  that  an  action  would  not  lie  in  the 
courts  of  England  to  enforce  an  oral  agreement  made  in  France, 
and  valid  there,  which  if  made  in  England  could  not,  by  reason 
of  the  statute  of  frauds,  have  been  sued  upon.  See  also  the  well 
considered  opinion  of  Park,  J.,  in  the  case  of  Downer  v.  Chcsc- 
boroagh,  36  Conn.  39,  4  Am.  Rep.  29,  where  it  was  held  that 
the  evidence  by  which  the  contract  was  to  be  proved  was  no 
part  of  the  contract  itself,  and  was  governed  therefore  by  the 
lex  fori,  and  not  by  the  lex  loci  contractus.  "Any  other  view  of 
the  law,"  it  was  said,  "would  lead  to  endless  perplexity.  Evidence 
merely  informs  the  court  what  contract  was  made.  It  has  noth- 
ing to  do  with  the  obligations  imposed  by  the  agreement.  Parties 
are  presumed  to  contract  in  accordance  with  the  law  of  the  place 
where  a  contract  is  made.  The  law  forms  a  part  of  it.  But  can  it 
be  said  that  the  parties  contract  in  regard  to  the  mode  by  which 
its  terms  and  conditions  shall  be  made  known  to  the  court  if  a 
suit  should  be  brought  on  the  contract?"  There  is  some  con- 
flict of  opinion  on  this  subject,  but  we  think  the  views  above 
stated  are  sustained  by  sound  reason  as  well  as  by  the  weight  of 
authority.  Dr.  Wharton,  in  his  work  on  the  Conflict  of  Laws 
(§  690) ,  says :  "Such  statutes  are  based  on  moral  grounds.  Their 
object,  as  is  shown  by  the  title  of  that  which  served  as  the  pattern 
of  all  others,  is  to  prevent  fraud  and  perjury.  Here  then  would 
come  into  play  the  position  on  which  Savigny  lays  such  great 
stress,  that  moral  laws,  or  laws  to  effect  moral  ends,  which  are 
imposed  by  particular  states,  are  peremptory  and  coercive,  and 
are  to  be  taken  as  rules  of  procedure  by  the  judges  of  such  states. 
It  is  true  that  Judge  Story  opposes  to  such  a  conclusion  his  great 
authority.  He  maintains  that  where  palfrol  contracts  are  good 
by  the  law  of  the  place  where  they   are   made,   they   may  be 


660  What  Law  Governs  Procedure  and  Remedy 

enforced  in  countries  where  they  would,  if  there  executed,  he 
barred  by  the  statute  of  frauds;  and  he  cites  a  number  of  cases 
to  this  point,  none  of  which  his  editor,  judge  Redficld,  states. 

3  to  adopt  the  views  he  here  intimates."  Judge  Redfield,  in 
the  n<  >te  referred  to,  says  :  "We  must  confess  that  upon  principle, 
as  the  statute  does  not  declare  the  contracts  void,  but  only  that 
no  action  or  suit,  either  in  law  or  equity,  shall  be  maintained  on 
such  contract,  it  ought  to  be  regarded  as  a  statute  affecting  the 
reined v  rather  than  the  contract,  and  that  wherever  made,  it  could 
not  be  sued  in  the  courts  of  a  state  where  the  statute  expressly 
provided  that  no  such  action  shall  be  maintained."    In  the  case  of 

v  v.  Williams,  5  Allen,  I,  where  a  different  rule  was  stated, 
and  in  the  eases  of  VanReimsdyk  v.  Kane,  1  Gall.  630,  Smith  v. 
Burnham,  3  Sumn.  435,  and  Low  v.  Andrews,  1  Story,  38,  in 
which  doubt  on  this  point  was  expressed  by  Judge  Story,  the 
question  was  not  actually  presented  for  decision.  A  case  which 
goes  very  far  in  vindicating  the  control  of  the  lex  fori  in  such 
cases  is  that  of  Bain  v.  Whitehaven,  3  House  of  Lords  Cases,  1, 
where  the  matter  is  discussed  by  Lord  Brougham,  and  the  con- 
clusion stated,  that  whether  a  certain  matter  requires  to  be  proved 
in  writing  or  not,  and  whether  certain  evidence  proves  a  certain 
fact  or  not,  is  to  be  determined  by  the  law  of  the  country  where 
the  question  arises,  where  the  remedy  is  sought  to  be  enforced, 
and  where  the  court  sits  to  enforce  it.  See  also  Wilson  v.  Miller, 
42  111.  App.  332;  Klceman  v.  Collins,  9  Bush  (Ky.),  460;  Wood, 
Statute  of  Frauds,  §  166. 

It  follows  from  what  has  been  said,  that  the  court  below 
ought  to  have  sustained  the  demurrer  and  dismissed  the  action. 

Judgment  reversed. 


^v  *»v 


INDEX 


ACCEPTANCE: 

of  bill   without   drawee 88 

refusal  of.  of  one  of  bills  in  set  consequence  of 122 

implied  from  retention  of  bill,  when 462-3 

refusal  of,  how  affects  drawer 323 

for  accommodation,  no  defense  against  bona  fide  holder 239 

when    completed    217 

revocation  of,  distinguished  from  rescission 217 

accommodation    215-216 

presumption   arising    from 213 

does  not  admit  handwriting  of  indorsers 234 

as  evidence  of  money  had  and  received 213 

paid  by  holder   213 

equivalent    to    drawing    note 214 

not    collateral    engagement 213 

appropriation   of   funds 213 

an  absolute  engagement  to  pay 213 

admits  genuineness  of  drawer's  original  signature 231 

not  his  indorsement 231 

amounts  to  promise  to  pay  money 12 

special,  form  of 4°5 

ACCEPTOR: 

admissions  of  195.  200,  201,  224,  293 

contract  of    195-6,  212 

what  law  governs 633-4,  642 

of  draft  when  no  drawee  named 88 

bound  to  know  genuine  payee 145 

not  liable  on  protested  draft  when 611 

presentment  for  payment  not  necessary  to  charge 208 

liability  of  shown  by  face  of  bill  not  to  be  varied 218 

not  liable  unless  acceptance  delivered 128 

liable  on  bill  to  which  drawer's  name  is  forged 225 

torn  in  two  with  intention  of  cancelling 129 

payment  by,  through  mistake  or  without  consideration 197 

ACCEPTOR  FOR  HONOR : 

who  is  331 

admissions  of 328,  33l 

contract  of  33l 

ACCIDENT: 

inevitable,     constitutes     excuse 384 

ACCOMMODATED  PARTY  : 

notice  to,  necessity  of 420 

661 


Index 

VCCOMMODA  I  [ON   PAPER: 

maker   liable   as   principal 49° 

how  affected  by  extension  of  time  of  payment 484-5 

liability   of   parties   upon 49° 

w  hen  given  in  exchange  for  like  paper 497 

indorsee  of,  unaffected  by  knowledge  of  purposes  for  which  given  496 

when    negotiability    ceases 612 

1  ibtaining  by  fraud,  eflfect  of 202 

misapplication   of,   effect   of 202 

ACCOMMODATION  PARTIES: 

contract    of    484 

no1   liable  to  accommodated  party 417 

liable  to  bolder  in  due  course 189 

ACCOUNT  STATED: 

en  to  explanation.... 109 

ACTION: 

commeneemenl  of,  of  itself  a  demand 347 

upon  instrument  must  be  by  legal  owner  thereof 347 

ADMISSIONS: 

of  acceptor  224 

VGENT: 

bow  should  sign  to  avoid  personal  liability 222-3 

distinction  between  "for"  and  "of" 221-2 

mere  description  as,  no  exemption  from  personal   liability 221 

personal    liability   of 219 

facts  peculiarly  within  knowledge  of.  accepted  by  third  persons.  .251-2 
who  may  give  notice  as 417 

ALLONGE: 

defined    313.    33* 

effect  of 310 

\  ITERATION: 

effect  of  164,  624 

ur>  in  holder  in  due  course 549 

material  and  unauthorized 554 

whether  lawfully  made,  burden  of  showing 624 

presumption,  as  to  when  made 625 

holder  in  due  course  of  altered  check,  rights  of 627-8 

AMOUNT  EXACT: 

sential   pari   of  negotiable  instrument 132 

ATTORNEY'S  FEES: 

stipulation  to  pay  how  affects  negotiability 67,  74 

how  regarded  71-2 

form  of  note  promising  to  pay 68 

ASSIGNMENT: 

not  equivalent   to   indorsement 313 

when  falls  short  of  transfer 313 


Index  663 

BAD  FAITH  : 

how   evidenced    525 

not  imputed  from  purchase  at  heavy  discount 532 

purchase  of  note  at  grossly  inadequate  price 534-5 

BANK: 

liability  of,  for  negligently  failing  to  make  presentmenl 380 

must  determine  signature  of  payee 109 

must  pay  only  on  genuine  order  of  payee no 

BANK  BILLS: 

delivery  of,  by  negligence 158 

BANKER: 

contract  with  depositor  implied 108 

obligation  to  pay  on  presentation  of  check 27 

when  notes  of,  came  into  general   use 26 

BANKRUPT: 

notice  to  420 

BEARER : 

note  payable  to,  transferred  by  delivery 320 

payable  to  when  indorsed  in  blank 162 

who  is   269 

BILL  OF  EXCHANGE: 

defined    57 

acceptance  of  254-5 

must  be  drawn  on  general  credit  of  drawee 57 

examples  of  invalid 58 

form  of 40,  41,  301.  325,  404 

forwarded  for  collection,   rights   under 302 

foreign,  differs  from  inland,  how 6 

inland,  law  formerly  same  on,  as  on  promissory  notes 13-17 

when  first   came   into    use 9-11 

instance  of,  not  payable  from  particular  fund 51 

payable  from  particular  fund 51 

lost,  presentation  of 406 

nature   of    259 

origin  of  23 

when  introduced  into  England 23 

payable  at  bank,  physical  presence  alone  in  bank  does  not  consti- 
tute  presentment   of 380 

parties  to   24-5 

practice  of  making  payable  to  order 24 

protest  by  notary-  necessary 370 

when  in  nature  of  promissory  note 260-1 

cannot  be  indorsed  or  negotiated  after  being  paid,  when 612 

drawee  of,  conclusively  presumed  to  know  signature  of  drawer...   230 
form  of  signed  in  name  of  agents 219 

BILLS  IN  SET: 

form  of   . 117-151 

right  of  action  before  presentment  of  all  parts 123 

one  of  parts  may  be  negotiated 123 

payment  of  unaccepted  part,  no  release  of  acceptor  on  accepted  part  123 

effect  of  transfer  of 152 

presentment  of   152 

either  may  be  presented  for  acceptance 122 


664  Index 

BILLS  l  >F  I.  UDING: 

;  to  pass  property  in  goods 27 

effect  of  when  attached  to  instrument 198 

BLANK: 

authority    to   fill,   express   or   implied 133 

drawing  line  through,  effect  of 102 

filling  up   "6 

may  be  tilled  as  to  amount 128 

BONDS: 

in  excess  of  authority,  void 251 

negotiable  when 132 

governed  by  principles  applicable  to  commercial  paper 132 

BRANCH  BANKS: 

not  treated  as  one 429 

notice  to   426 

BURDEN  OF  PROOF: 

as  to  negligence  in  failure  to  make  presentment 380 

of  party's  being  holder  in  due  course 566 

CANCELLATION: 

by  delivery  584 

CAPACITY  TO  CONTRACT: 

warranties  of  vendor  as  to 472 

CERTAINTY: 

as  requisite  of  negotiable  instrument 81 

to   time 84-5 

not  produced  by  matter  ex  post  facto 85 

reasonable,  payee  must  be  indicated  with 99 

CERTIFICATE: 

notary's — facts  stated  in  may  be  supplemented  by  parol 354 

CERTIFICATE  OF  DEPOSIT: 

acknowledging  deposit  in  checks  not  negotiable 75 

and  certified  check  distinguished 258 

form  of  75 

CERTIFICATION: 

when  a  crime 241 

by  agent  of  bank  without  funds  of  drawer  in  bank,  penalty  for.  ..  .  241 
forbidden  by  law.  effect  of  in  hands  of  holder  in  due  course.  .240-253 

where  holder  procures 253 

effect   of,  on  certifier,   on   drawer 254-5 

where  drawer  procures 256 

when  amounts  to  extension  of  time  of  payment 258 

CERTIFIER: 

without  funds  of  drawer,  effect 240 

contract  of 240 


Index  665 

CHECK: 

nature  of  257 

defined  257 

contract  of  bank  on  which  drawn . 257 

certified  and  certificate  of  deposit  distinguished 258 

drawee  of,  conclusively  presumed  to  know  signature  of  drawer.  .  230 

acceptance  of  by  drawee  bank  effect  of 3IQ 

payment   by,   defense  of 59° 

obligation   imposed  by  acceptance 590 

seasonable    presentment    of,    essential 596-7 

protest  of,  warrants   inference  of  insolvency   of   drawer 482 

payee  of,  when  holder  in  due  course 538 

alteration,   rights  of  holder  in  due  course. 627-8 

returned,  duty  of  drawer  to  examine m 

with    impersonal    payee I03 

without  payee,  effect  of I0° 

instrument   payable    in,   not   negotiable 75 

payable  on  demand,  presentment  for  acceptance  not  necessary....  257 

COLLATERAL  SECURITY : 

whether   good    consideration 185 

taking  instrument  as,  constitutes  value 203 

taking  instrument  as,  not  valuable  consideration 186-193 

CONDITIONAL  ORDER: 

form  of  43 

CONFLICT  OF  LAWS  :  629 

CONSIDERATION :  165 

what  constitutes   I7I_I93 

failure  of,  between  drawer  and  acceptor,  effect  of 200 

illegal,   kinds   of 559 

holding  as  collateral  security  not 185 

pre-existing     debt     not,     when     instrument     diverted     from     pur- 
pose        x88 

presumed   165-170.   179 

necessity  of   •   J75 

note  given  in  exchange  for  another,   though  for  mutual  conveni- 
ence,  good   497 

want  of,  between  drawer  and  drawee,  effect  of  on  bona  fide  holder 

after  acceptance  217 

for    acceptance,    what    law    considers 218 

not  essential  that  additional,  should  proceed  from  bona  fide  holder 

to  drawer 238 

taking   instrument   as   collateral   security  whether   constitutes 

186-193.  203 

failure  of,  good  defense  as  between   immediate  parties 312 

knowledge  of  failure  of  when  defense 3!4 

illegal,  whom  affected  by 556 

kinds  of 559 

total    failure   of,    purchase   money   cannot   be   recovered    back    on 

ground  of  474 

in  violation  of  a  statute,  effect  of  on  holder 566 

want  of,  without  effect  upon  indorsee  taking  accommodation  paper  496 

payment  of  nominal,  effect  of 335 

when  recital  of  does  not  put  indorsee  upon  inquiry 62 

pre-existing    debt   constitutes 176-186-189 


b6ti  I.\ni\ 

C(  IN  1  K ACT: 

the  negotiable  instrument  a 33 

primary    parties 207-209 

of  maker   207 

what   law  governs 633-4,  642 

of  acceptor  212 

what   law  governs 633-4,  642 

of  indorser   344.  346 

what    law    govern- 647-649 

of   surety   or   guarantor 49^ 

of   accommodation   parties 484 

prohibited  by  law.  effect  of 240,  253 

priority  of,  between  payee  and  acceptor 212 

making  of,  under  mistake  of  fact  consequence  of 218 

inids  of  rescission 218 

parol  not  admissible  to  show  bill  not  to  be  presented 286 

general  principle  in  construction  of 286 

absolute  terms  not  qualified  by  oral  agreement 287 

to  indemnify  against  liability  and  against  damage  resulting  from 

liability,  distinction   493 

fraud  amounting  to  want  of 549 

what  law  governs  in  general 629 

intention  of  parties  determines  law  governing 629 

legal  meaning  and  effect  of.  what  law  governs 648 

implied  between  hanker  and  depositor 108 

CORPORATION : 

obligation  of,  must  be  created  by  or  fairly  implied  from  the  paper     53 
paper  executed  on  blank  of,  no  presumption  of  corporate  liability.  .     54 

COUPONS: 

interest  on.  when  statute  of  limitations  runs  against 339 

statute  of  limitations   runs  against   from  maturity 343 

CUSTOM  OF  MERCHANTS: 

defined    295-296 

hecame  part  of  the  common  law 2-9-1 1 

action-  on,   brought   within  principles  of  assumpsit 7-9 

former  necessity  to  allege 2 

DAI  I 

1  imission  of,  effect  of 104 

DEBT: 

action    of,    when    lies 212-214 

DEFENSES : 

available  against  payee,  available  against  his  restrictive  indorsee.  .   300 

DELIVERY: 

presumed 160-164 

of  incomplete  instrument,  effect  of 125 

sale  of  paper  by,  consequences  of 472 

of  bill  or  check  implies  what 239 

t  ransfcr  by   320 

warranties  of  transferrer  by 465 

cancellation  by 584 


Index  667 

DEMAND : 

waiver  of   396 

of  payment,  time  of 410-411 

not  necessary  prior  to  commencement  of  suit 347 

personal  upon  maker  not  necessary  when 354 

on   maker  personally,   sufficient 360-2 

when  excused   377 

sufficiency  of,  as  to  paper  payable  at  bank 380 

when  new  not  necessary  by  holder  taking  after  dishonor 606 

on  j  oint  makers 59° 

failure  to  make,  effect  of 591 

paper  payable  on  when  at  maturity 544.  °!4.  657 

instrument  indorsed  after  discharge,  payable  on 97 

DEPOSITS: 

in  bank  create  relation  of  debtor  and  creditor 108 

DEPOSITORS: 

duty  to  examine  returned  vouchers  extent  of 109 

DILIGENCE: 

due,  of  holder,  what  is ■ 392 

no  absolute   rule   as   to   what    constitutes 384 

what   constitutes    432 

liability  of  indorser  a   question   of 432 

must  be  employed  in  making  demand   upon  maker 360 

in  making  demand,  sufficiency  of 360 

when   a   question   of   law 366 

when  of  law  and  fact 366 

what   constitutes   in   making  presentment 384 

DIRECTORY : 

mere   consultation   of,   not    diligent    inquiry 456 

DISCHARGE: 

release  to  discharge  co-promisors  must  be  under  seal 579 

of  party  primarily  liable 571.  574 

of  maker  by  surrender  of  note 577 

of  party  secondarily  liable 588,  596 

by  cancellation    587 

DISCOUNT: 

purchase  of  notes  at.  how  affects  good  faith 69.  531,  534 

DOMICIL: 

not  alone  determines  place  of  notice 446 

DRAWEE : 

must  be  named  or  otherwise  indicated _ 88 

not  bound  to  know  any  signature  to  bill  other  than  drawer's.  . .  -'3° 

liability  of,  retaining  or  destroying  bill 460 

liability  of,  on  accepting  more  than  one  part  of  bills  in  set 123. 


6t5S  Index 

DR  \W '  I'CR : 

n tract  of   196,  239,  321 

what    law   governs 647-649 

imported  by  construction  of  law 286 

collateral    213 

as  executor  or  trustee  of  drawee's  estate 261 

when  draws  on  himself 259,  264 

without    right    to    expect    acceptance 264 

what   amounts  to   reasonable  expectation 265 

when  draws  without  funds  in  drawee  bank 400 

when  procures  certification  of  check 256 

admissions  of   324-334 

not  presumed  to  know  signature  of  payee.  . . .  .. ....  109 

liability  of,  prerequisites  to 324 

under   French  code 653 

position  of  with  reference  to  checks  payable  to  fictitious  payee.  ..  112 

ignorance  that  payee  is  fictitious,  effect  of 329 

discharge  by  certification 255,  258 

of  protested  draft  cannot  put  in  circulation  again 611 

when  drawer  and  drawee  agents  of  some  corporation. 259,  260 

notice  to  joint,   when   one   drawee 264 

DURESS : 

burden  of  proof  of 570 

EQUITIES: 

holder  in   due  course  takes   free  from 556 

who  derives  title  through  holder  in  due  course  takes  free  from.  .561-3 

payee  takes  subject  to 564 

EQUITY: 

rule  in  as  to  modification  of  contract  by  parol 287 

ESCROW: 

delivery  in.  effect  of 155 

ESTOPPEL: 

doctrine  of  not  applied  without  necessity 126 

facts  falling  short  of  constituting 126 

nature  of  applying  to  signature  of  drawer 230 

as  against  maker  or  acceptor,  ground  of 319 

in  pais  applied 330 

EVIDENCE:—  (See  Parol  Evidence). 

EXCHANGE: 

instrument  payable  in,  equivalent  to  payable  with 66 

not  negotiable 66 

form  of  instrument  payable  in 66 

EXCHEQUER  BILLS: 

negotiable   26 

EXCUSE: 

of  presentmenl   377 

of  exhibition  of   instrument 377 

classes  of   377 


Index  (369 

EXECUTOR : 

contract  of  drawer  when  of  drawee's  estate 261 

interpreted  with  regard  to  person  sought  to  be  bound 233 

FICTITIOUS: 

person   who   deemed 326 

instrument  payable  to  order  of 105 

check  payable  to,  instance  of 107 

payable  to  order  of,  payable  to  bearer  when in,  233 

paper  signed  in  name  assumed  by  maker,  not 137 

payee  who  is 337 

supposed  by  drawer  to  be  real 326-7 

knowledge  by  drawer  that  payee  is,  effect  of 326 

FORGERY : 

liability  of  vendor  transferring  paper  void  by  reason  of 473 

of  bills  of  lading,  defense^  arising  from 200 

of  indorsement  of  prior  indorsee  whether  defense   to   subsequent 

indorsers    346 

sufficiency  of  proof  of 231 

of  bills  of  lading  attached  to  instrument,  effect  of 199 

of  signature  what  is I44»  149 

effect  of    143 

counterfeit   of   drawer's   signature 225 

indorsement  of  names  of  fictitious  payees,  constitutes 112 

raising  amount  is  224 

FRAUD : 

amounting  to  want  of  contract 157 

burden  of  proof  of 57° 

in  inducement,  effect  on  payee 156,  564 

FUNDS : 

what  amounts  to  in  hands  of  drawee 265 

GOVERNMENT  SCRIP: 

negotiable     r° 

GRACE : 

period  of,  lessened  when  last  day  of.  non-secular 384 

GUARANTOR: 

contract  of 49°.  5°° 

not  conditional    5°4 

to  pay  note • 5°4 

who  expressly  waives  demand  and  notice,  liable  how 498 

GUARANTOR  OF  PAYMENT : 

position  of,  that  of  surety S°3 

liability  of   500 

cannot  demand  diligence  of  holder 506 

GUARANTY : 

a  common  law  contract 5°3 

made  before  delivery  of  instrument,  effect  of 499 

HABIT: 

evidence  of,  as  qualifying  notice 355 


(570  Index 

HOLDER: 

defined  269,  587 

rights  of 5°7 

judgment  in  favor  of,  bar  to  other  suit 583 

diligence,  reasonable  required  of 384 

required  of  in  giving  notice 422 

authorized  to  fill  blank  with  his  name  as  payee 102 

deriving  title  through  holder  in  due  course 561-3 

of  blemished  paper,  presumption  against 625-6 

1  \i  wrongfully  diverted  paper,  rights  of 525 

for  value,  chargeable  with  what  knowledge 527 

entitled   to  what   presumptions 528 

renunciation  by 614 

after  paper  dishonored,   rights  of 606 

right  to  rely  upon  implied  guaranty  of  indorser  as  to  competency 

of    makers    480-1 

may  maintain  action  on  note  payable  to.  bearer 320 

not  to  assume  that  presentment  and  demand  will  be  of  no    service 

to  indorser  364 

taking  bills  before  acceptance  or  afterwards 218 

recourse   of,    on    non-acceptance 239 

procuring  check  to  be  certified,  effect  of 253 

making  presentment  reasonable  diligence  required  of 392 

not  prejudiced  by  mistake  of  P.  O.  officials 392 

passiveness  of,  no  release  to  guarantor 505 

HOLDER  IN  DUE  COURSE: 

who  is 162,  175-6,  189,  193,  199,  202,  510 

requisites   of    21 1 

presumption  as  to 179,  190,  280,  566 

may   be   overcome 612 

unaffected   by  equities 178-9,    556 

of    payor   against    payee 312 

by  transaction  between  antecedent  parties 122 

by  matter  of  defense  of  promisor  against  prior  party 514 

of  one  of  bills  in  set,  rights  of 123 

rights  of  when  authority  of  agent  exceeded 133 

limitation  upon  right  to  fill  blanks 134 

facts  sufficient  to  constitute 237 

not  affected  by  non-delivery 159 

of  corporate  note  wrongfully  diverted,  rights  of 529 

how  affected  by  purchase  at  inadequate  price 69 

when  lien  on  instrument  constitutes 202-5 

purchasing  paper  payable  to  "trustee"  without  inquiry 512 

of  paper  before  maturity  but   with  instalments   of  interest  over- 
due     516-20 

auspicious  circumstances  not  proving  mala  fides 521-3 

title  of,  not   impaired  by  mere  carelessness  in  taking  instrument..   524 

rights  of,  on  certification  forbidden  by  law 240-253 

defenses  against,  what  not  valid 241 

how  affected  by  alteration  of  contract 549 

when  person  not  deemed 541 

payee  as 535 

win.  purchases  note  at  grossly  inadequate  price,  not 535 

who  derives  title  through  holder  in  due  course,  is 561-3 

party  to  fraud  is  not 564 

HONORED: 

meaning  of  207 


Index  671 

ILLEGALITY : 

in  inception,  effect  of 242 

when  holder  in  due  course  subject  to 559 

INDEMNITY: 

to  payee  of  diverted  check,  effect  of 113 

INDORSEE: 

defined  • . 279 

notice  to,  that  maker  intended  to  refuse  payment,  effect  of 514 

action  against  acceptor 212 

not  innocent,  having  notice  of  dishonor 322 

suing  in  his  own  name  though  not  party  in  interest 299 

restrictive,   defenses   available  against 3°° 

taking  paper  overdue,  cannot  recover  against  maker,  when 612 

of  paper  overdue,  duty  to  make  inquiries 613 

INDORSEMENT: 

imports  what  480 

of  payee,  necessary  to  negotiation 326 

paper  delivered  to  purchaser  without 311,  313.  3^5.  3*6 

assignment  not  equivalent  to 3T3 

evidence  of  intention  of,  immaterial •  •   3l7 

liability  created  by,  a  subject  of  inquiry  as  between  original  parties  291 

but  not  as  against  a  bona  fide  holder 291 

in  figures    268 

form  and  mode  of 272,  281 

in  pencil   266 

of  bills  in  a  set »• x52 

must  be  of  entire  instrument 276 

partial  not  cured  by,  of  residue 277 

of  names  of  fictitious  payees  constitutes  forgery 112 

in  blank,  effect  of 279 

payable  to  bearer  .  . 162 

later  indorsed  specially 277 

changing  into  special 280 

special,  form  of 325 

without  words  to  order 98 

qualified   287 

effect  of  465,  468 

conditional    291 

instance  of 292 

restrictive 293,  304-5 

how  made 275 

meaning  of   3°° 

for  collection,  effect  of 297 

nature  of  contract 299 

omission  of  "or  order"  from,  negotiability  unaffected 294 

to  A  B  only,  effect  of 295 

incomplete,  effect  of 308 

by  partners 3°5 

by  joint  payees  not  partners 3°7 

by  cashier  of  bank 3°8 

by  corporation  .• 310 

by  infant,  effect  of I41 

by  agent,  validity  of 279 

by  maker  of  note  payable  to  his  order 580-1 

irregular,   forms  of 270-4 

without  words  of  negotiability 99,  305 


672  India 

vesting  title  in  indorsee  in  trust 301 

nstituting  indorsee  agent  of  indorser 296 

before  or  after  maturity,  distinction 98 

a  contract   272"4 

new    344 

not  varied  by  parol 300 

forged,  consequences  of  payment  on 234 

of  payee,  effect  upon  other  indorsers 345 

after  knowledge  of  fraud 312,  316 

after  maturity,  negotiable 99 

of  note  overdue  notice  imported  from 515 

of  dishonored  note  creates  what  liability 345 

does  not   relate  back , 318 

place  designed  in,  for  sending  notice,  a  qualification  of 434 

genuineness  of  payee's  must  be  determined  by  bank no 

and  delivery  266 

INDORSER: 

contract  of 147,  202.  272,  309.  332,  335.  344.  346,  359,  366,  590 

what  law  governs 647,  649 

liability  of  not  same  as  that  of  drawer 400 

warranties   of    147,    344 

qualified,    warranties    of 465 

liability  of,  on  demand  note 539 

irregular,    contract    of    273 

of    accommodation    paper,    right    to    recover    of    maker    without 

exhausting   collaterals    491 

unaffected  by  notice  or  knowledge  of  circumstances  or  purposes 

for   which    given 496 

rights  against  maker    589 

when  liable  as  maker   210 

presumed  to  know  that  mails  will  be  used  as  mode  of  transmission  384 

when  discharged 398,  422 

by  composition  with  principal   debtor 593.  604 

by  extension   of  time 604 

not  affected  by  rule  discharging  surety  upon   failure  to  sue  prin- 
cipal  debtor    595 

leaving  name  upon  paper  after  he  is  entitled  to  discharge,  effect  of  612 

liability  of  t<>  pay  interest 338 

not   liable  for  interest  until  chargeable  with  principal....   340 

implied  contract  of,  as  to  payment   of  interest 343 

diligence    of,    in   giving   notice 419 

when  notice  need  not  be  given  to 400,  420 

waiver  by,  subsequent  to  his  discharge 398 

taking  up  notes  becomes  invested  with  former  rights,  when 606 

taking  up  note  after  dishonor :  repurchase  not  payment 606 

not  affected  by  fact  that  paper  would  not  have  been  paid  on  pre- 
sentment      384 

competency  of  to  impeach  validity  of  instrument   to  which  he  is 

party    286 

INFAN1  : 

•    liable  on   negotiable   instrument 142 

►acity   to   indorse 331 

indorsement  by,  effect  of  141 

[NNOCENT  PARTIES: 

where  one  of  two  must  suffer 133 


Index  673 

INQUIRY: 

when  one  must  not  abstain  from  making 512 

INSOLVENCY: 

of  maker,  as  to  relief  from  duty  to  make  demand 364 

non-payment  of  check  warrants  inference  of 482 

INSTALMENTS : 

instruments  may  be  payable  in  stated 64 

form  of  instrument  payable  in 64 

INSTRUMENT:—  (See  Negotiable  Instrument). 

INTEREST: 

defined    340 

an  incident  of  principal 335-340 

not  demandable  of  indorser  until  maturity  of  principal 335-342 

overdue,  effect    516 

payable  annually,  then  demandable 335,  336 

INUREMENT: 

notice  by   418,  420 

JOINT  MAKER : 

who  is  210 

JOINT  PAYEES: 

indorsement  by 307 

JOINT  PROMISORS: 

release  of  one,  except  under  seal,  no  discharge  of  other 578 

KNOWLEDGE : 

not  equivalent  to  notice 261 

of  failure  of  consideration,  when  defense 314 

officer's  derived  as  individual,  not  to  prejudice  company 54 

when  officer's,  imputable  to  company 55 

of  director  of  one  company  not  imputable  to  another  of  which  he 

is  also  director 54 

LAW  MERCHANT : 

defined 295 

origin  of  22 

history  of 1-32 

originally  confined   to  merchants    only 2 

ceased  to  be  so  confined n 

part  of  common  law 2-1 1 

reasons  for  original  exclusion  from  common  law 6 

not  a  fixed  body 22 

LIEN: 

on  instrument  when  constitutes  holder  for  value 202-5 

on  overdue  bill,  effect  of 206 

MAIL: 

selecting  as  means  of  conveying  notice,  no  fault  imputable  from.  .   384 

MAILING: 

due,  includes  prepayment  of  postage 392 


074  Index 

MAKER: 

contract   of    207,  559 

what  law  governs 633,  642 

admissions    of    210 

presentment    not    necessary    to    charge 208 

not  discharged  by  non-presentment  at  designated  bank 349 

protest  not   necessary  to  charge ' 349 

giving  time  to,  without  indorser's  consent 604 

accommodation  liable  notwithstanding  holder's  knowledge  of  char- 
acter of  paper 1 485 

of  accommodation  paper,  extension  of  time  of  payment 484 

liable  to  bona  fide  holder  as  principal,  not  as  surety 490 

liable  to  bona  fide  holder  as  principal  not  as  suety 490 

when  may   show  paper  was 612 

release  of,  by  voluntary  cancellation  by  holder 576 

liability  of  issuing  instrument  in  imperfect  form 133 

a  surety  when    88 

MERCANTILE  USAGE: 

negotiability  founded  on 28 

tendency  of  courts  to  give  effect  to 29 

not  to  prevail  contrary  to  positive  law 31 

MONEY: 

instrument    must   be   payable    in 75 

NAME: 

middle  letter  not  part  of 144 

NEGLIGENCE: 

what  is,  not  determined  by  fixed  rule 384 

involves  neglect  of  duty 128 

facts  failing  to  constitute 127 

imputed  from  conduct  facilitating  fraud 129 

not  proximate  cause  of  fraud  when 128 

must  amount  to  estoppel  or  ratification  to  be  available  as  defense.  .  130 

facilitating    theft    126 

of  agent  imputable  to  principal  384 

imputed  to  acceptor 129 

of  drawers,  a  question  of  fact  when no 

imputed  from  drawing  check  so  as  to  admit  of  easy  interpolation.  .  129 

in  making  presentment  depends  upon  what 384 

of  signer  of  contract  converted  by  fraud  into  promissory  note 555 

of  receiving  bank  in  matter  of  presentment 380 

presumption  of,  in  case  of  loss  of  instrument  by  receiving  bank.  . .  .  380 

delivery  by  156 

of  postoffice  officials  not  imputable  to  sender 384,  392 

NEGOTIABLE  CHARACTER : 

not  lost  by  dishonor  of  instrument 98 

NEGOTIABILITY: 

determined  by  new  usage 28 

not  destroyed  by  statement  of  transaction 61 

not  destroyed  if  certain  time  of  payment  is  specified  though  fol- 
lowed by  indefinite  time 61 

whether  stipulation  to  pay  attorney's  fees,  destroys 70 

not  affected  by  directions  to  drawer  to  reimburse  himself  out  of 
particular  fund   46 


Index  675 

NEGOTIABLE  INSTRUMENT: 

a  contract  33 

must  be  complete  and  perfect  when  issued 132 

if  not  so  in  its  origin  cannot  be  made  so  by  any  abandonment 64 

must  be  unconditional 84,  88,  89,  166 

may  direct  reimbursement 168 

must  be  payable  in  money 166 

may  give  holder  election  to  require  something  to  be  done 

in  lieu  of  payment  of  money 9° 

must  be  certain  as  to  time 83 

may  be  payable  on  or  before  fixed  time 82 

may  be  payable  after  occurrence  of  an  event  sure  to  hap- 
pen, although  time  of  happening  be  uncertain 84 

must  be  payable  to  order  or  bearer 86 

must  name  or  indicate  drawee 88 

must  be  delivered 153 

delivered   by    negligence 156 

consideration  of,  presumed 165 

consideration,  necessity  of  expressing  in 169 

blanks  in,  when  may  be  filled  up . 122 

taken  by  third  party  at  his  peril  when 134 

defenses  to  when  in  hands  of  holder  in  due  course 241 

forbidden  by  statute,  effect  of 240 

illegality  in  inception  of,  effect  of 240 

when  lien  on,  constitutes  holder  for  value 202,  205 

overdue,  effect  of 205 

alteration  of,  effect  of 164 

discharge  of    571 

payable  at  bank,  demand  how  made 3°9 

parol  evidence  not  admissible  to  vary 283 

power  of  corporation  to  make 3°9 

infant  not  liable  on I41 

bill  of  lading,  attached  to,  effect  of 198 

lost,   effect  of 154 

negotiable  character  of 311 

not  lost  by  dishonor 98 

not    delivered     I25 

production  of,  prima  facie  evidence  of  title 5ID 

not  property  of  plaintiff  in  action  on,  defendant  may  show.  ..  .507-509 

in  circulation  after  due  suspicion  attaching  to 5J5 

whether  drawer  personally  liable  determined  from  face  of 220 

payable  at  bank,  essentials  of  presentment  of 380 

transfer   of,    without   indorsement 311-316 

rights  of,  parties  paying 606 

liability  appearing  on  face  of,  exclusive 486 

payable  at  particular  day 61 

to  a  fictitious  person 105 

in  exchange  not  negotiable 66 

waiver  incorporated  in,  extends  to  all  parties 447 

destruction  of,  by  obliterating  genuine  signature 225 

NEGOTIABLE  INSTRUMENT  LAW: 

origin   of    558 

obj  ect  of 558 

as  a  repealing  act 5°o 

in  general   266 

NEGOTIATION : 

what  amounts  to 268 


076  Index 

NON  NEGOTIABLE: 

rument,  all  defenses  available  against 82 

paper  payable  to  "trustee" 511 

NOTARY: 

certificate  of,  whether  evidence  outside  of,  competent 352 

nature  of,  printed,  effect 37* 

NOTICE: 

1  1    trust,   what    amounts  to 3°4 

NOTICE  OF  DEFECT : 

what  constitutes  163,  197,  520,  525,  53* 

knowledge  not   equivalent   of 262 

when  knowledge  amounts  to 261,  403 

not  made  out  from  suspicious  circumstance 521 

NOTICE  OF  DISHONOR: 

object  of  406,  4io 

what  amounts  to 262 

modes  of  giving 432 

form,  no  particular  required 4°7>  428 

may  be  written  or  oral 428 

test  of  sufficiency  of 94 

requisites  of 93,  263,  409,  413,  429 

sufficiency  of,  question  of  fact 94 

facts  showing  service  of  44° 

time  of  419,  427 

seasonable    438 

time  within  which,  must  be  sent 442,  437 

on  last  day  of  grace  not  premature 363 

where  must  be  sent 431,  444 

when  place  designated  in  instrument 431,  433 

in  case  of  indorser's  removal  from  designated  place 433 

when  indorser  has  changed  residence 422 

directed  to  right  person,  sent  to  wrong  address 428 

service  of  at  last  office  of  foreign  corporation 439 

diligence  in  serving  when  indorser's  residence  and  place  of  busi- 

ness  unknown   433 

domicil  not  the  only  circumstance  to  determine  place  of  giving.  . .  446 

mistake  in  address  of,  rectification 427 

to  whom  418 

to  whom  agent  may  give 372 

to  bankrupt 420 

to  partners   420 

to  branch  bank 426 

to  members  of  Congress 444 

to  successive  indorsers 427 

time  of   427 

to  one  indorser  for  delivery  to  co-indorsers 416,  435 

by  succession  through  intervening  parties 413,  420,  438 

by  in  irement  418,  420 

by  whom  given  413 

by  agent 415 

transmission  of  by  mail,  sufficiency  of 436 

by  mail,  not  received,  effect  of 419 

proof  of  sending 373 

1  ime  of  sending  by  mail 442 

by  telegraph  426 


Index  677 

when  need  not  be  given  to  indorser 400,  420,  454 

excused,  when 384,  392 

waiver  of  by  indorser,  what  constitutes 376 

not   fixing   liability  of  party  notified,   no  inurement   of  benefit   to 

another    437 

before  full  amount  paid 546 

when  drawer  is  executor  or  trustee  of  drawee's  estate 261 

mistake  of  date  in,  effect  of 409 

NOTICE  OF  NON-PAYMENT : 

when  excused  402 

NOTING: 

time    of    405 

ORDER: 

must  be  unconditional 49 

on  general  credit  of  drawer 48 

how  character  of,   determined 49 

general  and  particular,  distinction 48 

OVERDUE: 

different   meanings   of 544 

whether  demand  paper  is,  dependent  on  circumstances 545 

PAROL  EVIDENCE: 

inadmissible  to  vary  terms  of  instrument 210,  283,  287 

between  original  parties 333 

between  subsequent  holders 333 

inadmissible  to  show  drawer  not  to  be  personally  liable 220 

PARTIES : 

innocent,  where  one  of  two  must  suffer,  rule  as  to 124 

PARTICULAR  FUND : 

what  amounts  to   58 

test  as  to  what  amounts  to 57 

PARTNERS : 

notice  to  , 420 

presentment  to 365 

PASSBOOK: 

of  bank,  duty  to  examine in 

PAYEE : 

signature  of,  necessary  to  transfer 307 

existence  of,  admitted  by  drawer 326 

must  be  named  or  indicated 99 

omission  of 100 

authority  of  holder  to  fill 102 

impersonal,  check  payable  to  order  of,  valid 103 

fictitious,  effect  on  instrument 327 

contract  of  acceptor  when  there  is  a 331 

drawer  not  presumed  to  know  signature  of 109 

bank  must  determine ". 109 

deriving  title  through  holder  in  due  course,  subject  to  equities.  ..  564 


g78  1NDEX 

PAYMENT:  .  . 

facts    sufficient    to   establish   possession   of   note   by   payor   makes 

prima  facie  case  of 573 

acts  amounting  to  and  not  to  purchase 575 

by  indorser  does  not  inure  to  benefit  of  maker,  when 581 

upon  forged  indorsement,  effect  of 108 

remedy   for    234 

bill  received  as,  imports  what 597 

to  payee  of  diverted  check,  effect  of 113 

agreement  to  "stand  good  for,"  strictly  construed 458 

assurance  of,  effect  of 454 

discharge  by    370,  613 

place  of,  when  specified  an  essential  part  of  instrument 132 

PERSONAL  LIABILITY : 

of  officers  of  corporation  signing  as  president  and  treasurer 52 

PLACE  OF  PAYMENT:—  (See  Payment). 

POSTOFFICE: 

deposit  of  notice  in,  sufficient 392 

PRE-EXISTING  DEBT : 

as   consideration    I7o 

PRESENTMENT: 

why  necessary    353 

not  necessary  to  charge  acceptor  or  maker 208,  347 

to  primary  party  where  instrument  payable  generally 380 

rule  of,  stated  384 

due,  meaning  of 384 

sufficiency  of  evidence  to  establish 353.  357 

instrument  must  be  exhibited  at  time  of 377 

reason    for    exhibition 377 

not  valid  unless  person  making,  has  note  in  possession 368 

requisites  of,  where  instrument  is  payable  at  a  bank 380 

for   acceptance,  necessity   of 323 

time  of 350 

presumption    as    to 357 

rules  governing  35 1>  384 

place   of    351 

place  of,  named,  effect 3°9 

at  place  of  business 35^,  369 

at  residence,  when  proper 35 l 

by  whom  35*,  369 

authority  to  make 37° 

to  partners  3°5 

to  one  of  two  persons  purporting  to  be  partners 480 

to  j  oint  debtors 367 

to  administrator  364 

in  case  person  primarily  liable  is  dead 363 

in  case  drawer  is  executor  or  trustee  of  drawee's  estate 261 

discharge  of  secondary  parties  by  failure  of 380 

waiver  of 39*5 

allegation  of  presentment  does  not  preclude  showing 440 

at  time  required,  excused  by  fault  of  postmaster 392 

negligence  of  receiving  bank  in  making,  depends  upon  what 384 

for  payment  to  drawee,  subsequent  to  refusal  of  latter  to  accept.  .  323 

necessity  for  * 323 

effect  of    * 321 


Index  679 

PRIMARY  PARTIES: 

contract  of ••  •  2°7 

demand  upon,  not  necessary 200 

PRIVITY: 

none  between  maker  and  indorser,  when 5°2 

PROCEDURE: 

what  law  governs °54,  057 

PROCURATION : 

signature  by,   defined x3° 

effect  of *38 

PROMISSORY  NOTES : 

origin  of  24 

came  into  general  use I0 

when  no  distinction  between,  and  inland  bills 10,  13 

whether  negotiable  at  common  law 17 

form  of  28i 

when  in  form  of  bill  of  exchange 260 

payable  on  demand,  liability  of  maker  on 589 

when  can  be  sued  on  5°8 

liability  of  indorser  on 5^9 

when  at  maturity 614 

must  be  unconditional 43 

must  be  payable  at  time  certain •     03 

surrender  of,  to  maker  on  payment  of  less  than  face  value,  effect  of  584 

without  consideration  to  maker 495 

for  accommodation  of  payee 495 

given  to  indemnify  indorser  of  another  note 492 

of  corporation,   form  of 52° 

wrongfully  dealing  with,  by  officer 529 

fraudulent  in  its  inception,  not  invalidated  in  hands  of  holder,  when  520 
secured  by  mortgage  passes  to  holder  discharged  of  equities,  when  519 
usurious,    sale    of 472 

PROTEST :  404 

denned    4°5 

general  requisites  of 4°4 

description  of  bill  in,  when  sufficient 4°o 

variance  in,  effect  of . 4°" 

of  foreign  bills,  necessity  of 37° 

not  necessary  to  charge  maker 349 

copy  of,  need  not  be  included  in  notice  to  drawer  or  indorser.  . .  .  406 
of  note,  not  necessary 37° 

PURCHASER: 

bona  fide  though  he  takes  with  knowledge  that  makers  are  married 

women 4"° 

effect  of  taking  paper  delivered  to  him  without  indorsement. .  .313,  310 
paying  after  notice  of  infirmity  protected  only  pro  tanto 547 

PURCHASE  AT  DISCOUNT: 

amount  of  recovery   534 

RELEASE  OF  MAKER : 

effect  of   592 


680  lNDEX 

REMEDY: 

wh.it  law  governs °54.  °57 

[RENUNCIATION: 

construction  of  statute  relating  to 621 

when  nol  absolute  and  unconditional 614 

must  appear  from  record 617 

construction  of  writing  purporting  to  he 620-1 

cts  falling  short  of 617 

REPRESENTATIVE  CAPACITY : 

signing  in  52»  21  l 

SALE: 

by  delivery,  consequences  of 472 

SEAL: 

origin  and  use  of 3° 

when  came  into  use  in  England :     37 

effect  of,  upon  negotiability  of  instrument 35,  96 

scroll  not  equivalent  of 97 

of  notary^  evidence  of  dishonor 37l 

SECONDARY  PARTIES : 

contract  of   321,  377 

discharge  of  380,  588 

SHORT  ENTRY: 

defined    303 

effect  of 303 

SIGNATURE: 

genuineness  of,  warranty  of 468 

by  procuration,  defined ■ 138 

effect  of   138 

of  payee  necessary  to  transfer 3°6 

forged,  what  is 144.  J49 

effect  of 143 

of  notary,  printed,  effect  of 371 

in  trade  or  assumed  name 136 

SOLVENCY: 

warranty  of   468 

STAMPS: 

want  of,  not  a  suspicious  circumstance 159 

STATEMENT  OF  TRANSACTION  GIVING  RISE  TO  INSTRU- 
MENT: 

example  of 59 

does  not  render  instrument  non-negotiable 59 

STATUTE: 

consideration  in  violation  of,  effect  on  holder 566 

forbidding  certification,   construed 240 

forbidding  certification  by  cashier  of  bank  without  funds,  purpose 

of  248 

inconsistent,  how  construed   560 

1  >f  Anne,  reason  of  passage 16 

declaratory   26 

force  of  in  the  United  States '. .  • .  557 


Index  681 

STATUTE  OF  LIMITATIONS : 

when  begins  to  run  on  interest  coupons 339 

when  begins  to  run  on  demand  note 589 

runs  against  holder  after  presentment  for  acceptance 321 

SURETY : 

contract  of  498 

how  affected  by  the  taking  of  new  security 601 

release  of,  by  composition  with  principal  creditor 593 

reservation  by  creditor  of  rights  against 594,  604 

discharge  of 593,  600 

reasons  operating  against 594 

when  maker  is 88 

liability  of,  for  deficiency  on  foreclosure 600 

SURRENDER: 

of  note  to  maker  on  payment  of  less  than  face  value,  effect  of .  . . .   584 

TELEGRAPH : 

notice  by 426-7 

TENDER: 

what  amounts  to  waiver  of  formal  requisites  of 618 

of  payment,  leaving  money  in  designated  bank 349 

TIME: 

certainty  of,   essential   to  negotiability 63,  82,  84 

of  sending  notice 37l~373 

is  certain  although  instrument  payable  on  or  before  day  named.  ...     82 

TITLE: 

sustained  if  gained  from  holder  in  due  course 199-200 

transferring  a  better,  applicable  only  to  negotiable  instruments. ..  .  317 

defective  when 549,  559 

legal,  when  passes    3T3 

TRANSFER: 

of  note  not  made  by  assignment  of  bond 313 

TRUSTEE: 

paper  payable  to,  import  of 512 

contract  of  drawer,  when  of  drawee's  estate 261 

person   signing   as,   personally   liable 222 

USAGE: 

of  bank,  when  parties  bound  by 411 

USURY : 

knowledge  of  vendor  of 473 

transfer   of  note   tainted   with,    warranty   against   it   will    not   be 

implied  when 473 

VARIANCE: 

in  notice  when  fatal 410 

affecting  validity  of  protest 406 


tihJ  Index 

VENDOR: 

contract  of,  note  void  for  usury 405.  471 

warranties  of 132,  472,  575 

transferring  note  tainted  with  usury  but  without  knowledge  of  the 

fact  • • •  475 

withholding   information    that    check   had   been    protested,   avoids 

sale   482-3 

VOUCHERS: 

returned,  duty  to  examine 109 

WAIVER: 

denned 4<>i 

of  presentment  and  demand 396 

implied 401 

of  demand  constituting  waiver  of  notice 4°3 

of  proof  of  plaintiff's  title 411 

of  presentment  and  notice,   facts  sufficient  to  establish 220 

of  exhibition  of  instrument • 377 

not  made  when  indorser  ignorant  of  fact  that  he  is  discharged.  . .  .  368 

of  notice  by  indorser   what  constitutes 376 

contained   in   instrument 447 

oral 449 

of  protest,  effect  of 45° 

by   implication    452 

agreements  for,  strictly  construed 456 

facts  falling  short  of  establishing 457 

WARRANTIES: 

of  general  indorser  344 

implied,  scienter,  essential  to  establish 475 

WITHOUT  RECOURSE: 

effect  of  indorsement 288 

proof    admissible    to    show    to    which     instrument     indorsement 

applies 288-290 

immaterial   whether  written   over  or  under   indorsement 200 

immaterial  that  holder  mistook  application  of 291 

WRITING: 

essential  of  negotiable  instruments 38 


LAW  LIBRARY 

UNIVERSITY  OP  CALIFORNIA 

LOS  ANGELES 


UC  SOUTHERM  REGIONAL  LIR 


RARY  FACILITY 


M    000  760  122 


